Question

Re f ormation Problem 10-4A Straight Line Amortation of bond discount LO P2 The following information applies to the questions colaed below) Legacy issues 8560 000 of 904 tour year bonds dated January 2018, that payroorest semiannually on sune 30 and December they when there was Problem 10-4A Part 4

Answer 1

Face value of bonds = $560,000 Coupon rate = 9% * 6/12 = 4.5% Per period Term = 4 Years * 2 = 8 Periods Coupon amount = Face value * Coupon rate = $560,000 * 4.5% = $25,200 Per period Issue price of bonds = $507,831 Discount on issue of bonds = Face value - Issue price = $560,000 - $507,831 = $52,169 Amortization of discount per period = Discount on issue of bonds / Term = $52,169/8 = $6,521.125 Journal entries for first 2 interest payments June 30, 2019 Interest expenses Alc Dr $31,721.125 To Discount on bonds payable Alc $6,521.125 To Cash A/C $25,200 (Being interest expenses recorded for first period) Dec 31, 2019 Interest expenses Alc Dr $31,721.125 To Discount on bonds payable Alc $6,521.125 To Cash Alc $25,200 (Being interest expenses recorded for second period) Note: Here we are following straight line method, hence there is no change in amortization of discount per period. Hence interest expenses per period also constant in this methos.