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4. Bond Issued at a discount (10 points) On January 1,the first day of the fiscal...

4. Bond Issued at a discount (10 points) On January 1,the first day of the fiscal year, Murray Company issues a $1,000,000, 5%, five-year bond, receiving cash of $947,560. The bond pays interest semiannually on June 30 and December 31, and is amortized semiannually suing the straight-lien method. A. Journalize the issuance of the bond on January 1. (Note: Journal entry needs to show date) B. Journalize the semiannual interest payments on the June 3 and December 31 of the first year. The bond discount amortization is combined with the semiannual interest payment. C. Determine the carrying amount of the bond at the end of the first year.

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Answer #1

Journal entry

No Date account and explanation Debit Credit
a Jan 1 Cash 947560
Discount on bonds payable 52440
Bonds payable 1000000
b June 30 Interest expense 30244
Discount on bonds payable (52440/10) 5244
Cash (1000000*5%*6/12) 25000
Dec 31 Interest expense 30244
Discount on bonds payable 5244
Cash 25000

c) Carrying amount

Long term liabilities
Bonds payable 1000000
Less; Discount on bonds payable -41952 958048
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