Question

M10-6 Recording the Issuance and Interest Payments of a Bond Issued at a Discount (with Discount Account) LO10-4 Coffman Company sold bonds with a face value of $983,000 for $679,382. The bonds have a coupon rate of 2 percent, mature in 5 years, and pay interest semiannually every June 30 and December 31 All of the bonds were sold on January 1 of this year. Using a discount account, record the sale of the bonds on January 1 and the payment of interest on June 30 of this year. Coffman uses the effective-interest amortization method. Assume an annual market rate of interest of 10 percent. (If no entry is required for a transaction/event, select "No journal entry required in the first account field. Round final answers to whole dollar amounts.)

Answer 1

1.

Journal Entries
Date	General Journal	Debit	Credit
January 1	Cash	$ 679,382.00
	Discount on bonds payable (Face Value - Issue Price) (983000-679382)	$ 303,618.00
	Bonds Payable		$ 983,000.00
	(To record the sale of bond)

2.

Journal Entries
Date	General Journal	Debit	Credit
June 30	Interest Expense (679382*10% *1/2)	$ 33,969.10
	Discount on Bonds Payable (33969.10-9830)		$ 24,139.10
	Cash (983000*2% *1/2)		$ 9,830.00
	(To record payment of interest)

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