Question

On January 18, 2018, Apple Company sold 12% bonds having a maturity value of 500,000 for 337,908, which provides the bondholders with a 10% yield. The bonds dated January 1st, 2018 and mature January 15, 2023, with interest payable December 31 of each year. Instructions: a) Prepare the journal entry at the date of the bond issuance b) Prepare a schedule of interest expense and bond amortization for 2018 – 2023.

Answer 1

Journal entry on bond issue:

Cash ----------------------------- -- Dr. 337,908

Discount on bonds payable ---Dr. 162,092

Bonds payable -------------------Cr. 500,000

	Amortization of Bond discount	Cash paid	Interest expense (B+C)
Opening	162,092
31-Dec-18	32,418	60,000	92,418
31-Dec-19	32,418	60,000	92,418
31-Dec-20	32,418	60,000	92,418
31-Dec-21	32,418	60,000	92,418
31-Dec-22	32,418	60,000	92,418