Question

CALCULATOR PRINTER VERSION BACK NER Stephanie Ram Corporation have a $760,000 'bond issue dated February 1, 2016 due in 10 years with an annual interest rate of 9%. Interest is payable February 1 and August 1. On April 1, 2016 the bond was sold for $677.400 plus accrued interest Using the straight-line method, prepare the general Journal entries for each of the following: a) The issuance of the bond on April 1, 2016, b) Payment of the semi-annual interest and the amortization of the discount on August 1, 2016. c) Accrual of the interest and the amortization of the discount on December 31, 2016 d) Payment of the semi-annual interest and the amortization of the discount on February 1, 2017 (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Do not use dollar signs (S) when entering amount. Te formatted numbers reflected in your final answers, you must enter your answers with commas. Round answers to 2 decimal places, e.g. 5,275.25.) Date Account Titles and Explanation et 2016 677400 Apr. 11 Cash B T Discount on Bonds Payable : Bonds Payable Di nug. Sond Interest Expense D Discount on Bonds Payable : 6 380.33

Answer 1

DATE	ACCOUNT TITLE	DEBIT	CREDIT
1 April 2016	cash [677400+11400]	688800
	Discount on bond payable	82600
	Bond payable		760000
	Interest payable		11400
	[Being Bond issued at discount of 760000-677400 = 82600 along with accrued interest for 2 months (1Feb -1April) amounting to 760000*9%*2/12 = 11400]
1August 2016	Interest expense	26930
	Interest payable	11400
	Discount on bond payable		4130
	cash [760000*.09*6/12]		34200
Dec 31	Bond interest expense	31941.67
	Discount on bond payable [4130*5/6]		3441.67
	Bond interest payable [34200*5/6]		28500
	[Being bond interest accrued for 5 months (1Aug -31Dec) out of semiannual period of 6months]
1Feb 2017	Interest expense	6388.33
	Interest payable	28500
	Discount on bond payable		688.33
	cash		34200
	[Out of 6 month interest period ,5 month of interest and discount was amortized in last year on Dec 31 so remaining 1 month will be amortized in current period (1Jan -1Feb)] current year discount amortization= 4130-3441.67 last year ]= 688.33

**semiannual interest to paid =760000*9%*6/12 = 34200

There are 2 semiannual periods in a year comprising of 6 months each .Total semiannual period over the maturity of bond = 10*2 = 20

Semiannual amortization of Bond discount = 82600 /20 =$ 4130 per semiannual period