Question

Brief Exercise 14-6

On January 1, 2017, Splish Corporation issued $640,000 of 9% bonds, due in 8 years. The bonds were issued for $605,318, and pay interest each July 1 and January 1. Splish uses the effective-interest method.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%

Answer 1

Journal entry :

Date	accounts & explanation	debit	credit
Jan 1	Cash	605318
	Discount on bonds payable	34682
	Bonds payable		640000
	(To record issue bonds payable)
July 1	Interest expense (605318*10%*6/12)	30265.90
	Discount on bonds payable		1465.9
	Cash (640000*9%*6/12)		28800
	(To record interest payment)
Dec 31	Interest expense (605318+1465.9)*10%*6/12	30339.20
	Discount on bonds payable		1539.20
	Interest payable		28800
	(To record adjusting entry)