Question

On the first day of the fiscal year, a company issues an $931,000, 8%, five-year bond that pays semiannual interest of $37,240 ($931,000 x 8% x 1/2), receiving cash of $875,100. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method. If an amount box does not require an entry, leave it blank.

Answer 1

Journal entries
S.no.	Accounts title and explanations			Debit $	Credit $
a.	Interest expense				42830
	Cash account (931000*8%*6/12)			37240
	Discount on bonds payable (931000-875100)/10		5590
	(for interest expense incurred)
b.	Bonds payable				5,20,000
	Discount on bonds payable				35,000
	Cash account					4,76,000
	Gain on redemption of bonds (bal. fig.)			9,000
	(for redemption of bonds)