Question

Review the following Transactions pf Trahan Communications Inc

Requirements Journalize the transactions of Trahan Communications, Inc. At December 31, 2018, after all year-end adjustments have been made, determine the carrying amount of Trahan's bonds payable, net. For the six months ended July 1, 2018, determine the following for Trahan: a. Interest expense b. Cash interest paid What causes interest expense on the bonds to exceed cash interest paid? Print Done

Answer 1

1.

Journal Entry
Date	Accounts	Debit	Credit
2018
Jan. 1	Cash ($9000000 x 94/100)	8460000
	Discount on bonds payable	540000
	Bonds payable		9000000
Jul. 1	Interest expense	387000
	Discount on bonds payable ($540000/20)		27000
	Cash ($9000000 x 8% x 1/2)		360000
Dec. 31	Interest expense	387000
	Discount on bonds payable ($540000/20)		27000
	Interest payable ($9000000 x 8% x 1/2)		360000
2019
Jan. 1	Interest payable	360000
	Cash		360000
2028
Jan. 1	Bonds payable	9000000
	Cash		9000000

2. At December 31, 2018, after all year-end adjustments, the carrying amount of the bonds payable is $8514000.

($8460000 + $27000 + $27000) = $8514000

3a. Interest expense: $387000

3b. Cash interest paid: $360000

The amortization of the discount on bonds payable causes the interest expense to exceed the cash interest paid.

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