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Problem 10-4A Straight-Line: Amortization of bond discount LO P2

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Legacy issues $590,000 of 7.5%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $542,310 when the market rate is 10%.

Problem 10-4A Part 4

4. Prepare the journal entries to record the first two interest payments.

Answer 1

Par value of bonds = $590,000

Issue price of bonds = $542,310

Discount on bonds payable = Par value of bonds - Issue price of bonds

= 590,000 - 542,310

= $47,690

Semi - annual amortization of bond discount = 47,690/8

= $5,961

Semi - annual interest payment = 590,000 x 7.5% x 6/12

= $22,125

Journal

Date	Account Title and Explanation	Debit	Credit
June 30	Bond interest expense	28,086
	Cash		22,125
	Discount on bonds payable		5,961
Dec. 31	Bond interest expense	28,086
	Cash		22,125
	Discount on bonds payable		5,961

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