Question

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Duval Co. issues four-year bonds with a $106,000 par value on January 1, 2019, at a price of $100,944. The annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31.

Prepare journal entries to record the first two interest payments. (Round your answers to the nearest dollar amount.)

1. Prepare a straight-line amortization table for these bonds. (Round your answers to the nearest dollar amount.) Semiannual Period-End 1/01/2019 Unamortized Discount Carrying Value 6/30/2019 12/31/2019 6/30/2020 12/31/2020 6/30/2021 12/31/2021 6/30/2022 12/31/2022

2) Record the interest payment and discount amortization on December 31, 2019.

Options for the General Journal

• Accounts payable
• Accounts receivable
• Accumulated depreciation
• Bond interest expense
• Bonds payable
• Cash
• Common stock
• Contributed Capital in excess of par value
• Depreciation expense
• Discount on bonds payable
• Gain on retirement of bonds payable
• Interest payable
• Lease liability
• Leased asset
• Loss on retirement of bonds payable
• Premium on bonds payable
• Rental expense

3. Prepare the journal entry for maturity of the bonds on December 31, 2022 (assume semiannual interest is already recorded).

options for the general Journal

• Accounts payable
• Accounts receivable
• Accumulated depreciation
• Bond interest expense
• Bonds payable
• Cash
• Common stock
• Contributed Capital in excess of par value
• Depreciation expense
• Discount on bonds payable
• Gain on retirement of bonds payable
• Interest payable
• Lease liability
• Leased asset
• Loss on retirement of bonds payable
• Premium on bonds payable
• Rental expense

Answer 1

Answer 1:

Semiannual Unamortized Carrying Period-End Discount value 1/1/2019 $5,056 $100,944 6/30/2019 $4,424 $101,576 12/31/2019 $3,792 $102,208 6/30/2020 $3,160 $102,840 12/31/2020 $2,528 $103,472 6/30/2021 $1,896 $104,104 12/31/2021 $1,264 $104,736 6/30/2022 $632 $105,368 12/31/2022 $0 $106,000

Working:

Discount on bonds payable = 106000 - 100944 = $5056

Number of semiannual periods = 4 * 2 = 8

Amortization per semiannual period (straight line basis) = 5056 / 8 = $632

Hence:

For semiannual end 1/1/2019:

Unamortized discount = $5044

Carrying value = $100,944

For semiannual end 6/30/2019:

Unamortized discount = $5044 - 632 = $4412

Carrying value = 100944 + 632 = $101,576

Similarly we calculate below for all semiannual periods end values:

Semiannual Amortized Unamortized Carrying Period - End amount Discount value 1/1/2019 $5,056 $100,944 6/30/2019 $632 $4,424 $101,576 12/31/2019 $632 $3,792 $102,208 6/30/2020 $632 $3,160 $102,840 12/31/2020 $632 $2,528 $103,472 6/30/2021 $632 $1,896 $104,104 12/31/2021 $632 $1,264 $104,736 6/30/2022 $632 $632 $105,368 12/31/2022 $632 $0 $106,000

Answer 2 (1):

Cash paid = 106000 * 8%/2 = $4240

Credit Date June 30, 2019 Debit $4,872 General Journal Bond Interest Expense Discount on bonds payable Cash $632 $4,240 (to record interest payment and discount amortization)

Answer 2 (2):

Credit Debit $4,872 Date General Journal December 31, 2019 Bond Interest Expense Discount on bonds payable Cash $632 $4,240 (to record interest payment and discount amortization)

Answer 2 (3):

Assuming semiannual interest and amortization is already recorded, journal entry on maturity of bond will be:

General Journal Credit Date December 31, 2022 Bonds payable Cash Debit $100,000 $106,000 (to record bond redemption on maturity)