Question

Discount Amortization On the first day of the fiscal year, a company issues a $4,500,000, 10%, 10-year bond that pays semiannual interest of $225,000 ($4,500,000 * 10% * V2), receiving cash of $3,756,251. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank. Interest Expense Discount on Bonds Payable Cash Feedback Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account. The straight-line method of amortization provides equal amounts of amortization over the life of the bond. Learning Objective 2

Answer 1

Journal entry to record the first interest payment: B Debit $262.187 с Credit A 1 Account Titles and Explanation 2 Interest expense 3 Discount on bonds payable 4 Cash 5 (To record first interest payment) $37,187 $225,000 Calculations are shown below: с Credit A B 1 Account Titles and Explanation Debit 2 Interest expense =C4+C3 3 Discount on bonds payable 4 Cash 5 (To record first interest payment) =(4500000-3756251)/(10*2) =4500000*10%*(6/12)