Question

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year: a. Issuance of the bonds. If an amount box does not require an entry, leave it blank or enter "o". b. First semiannual interest payment (record as separate entry from discount/premium amortization). c. Amortization of bond discount/premium, using the straight-line method of amortization, on July 1.

Answer 1

Date/Event	Account Name	Debit	Credit
a) On Issue of Bond	Cash	1,225,000
	Discount on bonds payable	275,000
	8% Bond Payable		1,500,000
	(To record issuance of bond)
b) On First Interest Payment	Interest Expense	60,000
	Cash		60,000	(1500000 * 8%)/2
	(To record interest expense )
c) Amortization of discount	Interest Expense	13,750		(275000 / 20 semiannual)
	Discount on bonds payable		13,750
	(To record bond amortisation)