Question

Problem 14-4A Straight-Line: Amortization of bond discount LO P2

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Legacy issues $740,000 of 7.5%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $680,186 when the market rate is 10%.

Journal entry worksheet Record the issue of bonds with a par value of $740,000 on January 1, 2019 at an issue price of $680,186. Note: Enter debits before credits. Date General Journal Debit Credit January 01

Please answer in this format please!

Answer 1

1)

Date	General Journal	Debit	Credit
January 01	Cash	$680186
	Discounts on bonds payable (740000-680186)	$59814
	Bonds payable		$740000
	(To record bonds issued at discount)

2)

Total bond interest expense over life of bonds:
Amount repaid
8 payments of $27750	$222000
Par value at maturity	740000
Total repaid	962000
Less: Amount borrowed	(680186)
Total bond interest expense	$281814

Interest expense= $740000*7.5%*6/12= $27750

Number of payments= 4*2= 8

3)

Semiannual Period-End	Unamortized Discount	Carrying Value
01/01/2019	$59814	$680186
06/30/2019	(59814-7477)= 52337	(680186+7477)= 687663
12/31/2019	(52337-7477)= 44860	(687663+7477)= 695140
06/30/2020	(44860-7477)= 37383	(695140+7477)= 702617
12/31/2020	(37383-7477)= 29906	(702617+7477)= 710094

Discount= $59814/8= $7477

4)

Date	General Journal	Debit	Credit
June 30	Interest expense ($27750+$7477)	$35227
	Cash ($740000*7.5%*6/12)		$27750
	Discount on bonds payable ($59814/8)		$7477
	(To record interest payment and discount amortization)
December 31	Interest expense ($27750+$7477)	$35227
	Cash ($740000*7.5%*6/12)		$27750
	Discount on bonds payable ($59814/8)		$7477
	(To record interest payment and discount amortization)