Question

The Flint Company issued $220,000 of 9% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 98.

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Flint Company records straight-line amortization semiannually.

Answer 1

Solution

Date	Account Title and Explanation	Debit	Credit
January 01, 2020	Cash	$ 215,600
	Discount on bonds payable	$ 4,400
	Bonds payable		$ 220,000
	(To record Issuance of bonds )
June 30, 2020	Bond interest expense	$ 10,340
	Discount on bonds payable		$ 440
	Cash		$ 9,900
	(Interest on bond paid and Discount amortized)
December 31, 2020	Bond interest expense	$ 10,340
	Discount on bonds payable		$ 440
	Cash		$ 9,900
	(Interest on bond paid and Discount amortized)

Working

Bond issue price (220000/100 x 98)	$          215,600.00
Face value	$          220,000.00
Discount on bonds payable	$               4,400.00
Number of Interest payments (5 years x 2)	10
Discount/ premium to be amortized per Half year	$                  440.00
Cash Interest on bond (220000 x 4.5%)	$               9,900.00
Interest expense to be recorded (21000-600)	$            10,340.00