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

Date	Account details and explanation	Debit	Credit
Jan-01	Cash	$679,382
	Discount on bonds payable	$303,618
	Bonds Payable		$983,000
June-30	Interest expense	$39,320
	Cash (983,000*2%*6/12)		$9,830
	Discount on bonds payable		$29,490

Computation of effective interest

= total discount / PVAF(5% , 10 periods)........................ (semi annual interest = 10 /2 = 5%)

= $303,618 / 7.721734929

= $39,319.92