Question

Cornerstone Exercise 9-32 (Algorithmic) Bonds Issued at a Discount (Effective Interest) Sicily Corporation issued $750,000 in 6% bonds (payable on December 31, 2029) on January 1, 2020, for $675,000. Interest is paid on June 30 and December 31. The market rate of interest is 10%. Required: Prepare the journal entries for December 31, 2020 and 2021. Round amounts to the nearest whole dollar. Dec. 31, 2020 Interest Expense 26,250 X Discount on Bonds Payable 3,750 X Cash 22,500 Interest Expense 26,250 X Dec. 31, 2021 Discount on Bonds Payable 3,750 X Cash 22,500

Answer 1

Amortization table
Date	Interest Payment($750,000*3.00%)	Interest expenses(Bond carrying amount*5%)	Discount amorrtization	Unamortized discount	Bond carrying amount
01-Jan-20				75,000	6,75,000
30-Jun-20	22,500	33,750	11,250	63,750	6,86,250
31-Dec-20	22,500	34,313	11,813	51,938	6,98,063
30-Jun-21	22,500	34,903	12,403	39,534	7,10,466
31-Dec-21	22,500	35,523	13,023	26,511	7,23,489
	Date	Accounts and explanation	Debit(in $)	Credit(in $)
	31-Dec-20	Interest Expenses	34,313
		Discounts on Bond payable		11,813
		Cash		22,500
		(Discount on Bonds amortized)
	31-Dec-21	Interest Expenses	35,523
		Discounts on Bond payable		13,023
		Cash		22,500
		(Discount on Bonds amortized)