On January 1, 2019, Drennen Inc. issued $4.6 million face amount of 6-year, 14% stated rate...
On January 1, 2019, Drennen Inc. issued $4.6 million face amount of 6-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2024.
b-2. Assume instead that the proceeds were $4,820,000. Record the journal entry to show the payment of semiannual interest and the related discount amortization on June 30, 2019, assuming that the discount of $180,000 is amortized on a straight-line basis.
Homework Answers
| Working Notes: | ||||
| Calculation of total interest expenses | ||||
| Par Value of the bonds = | $ 46,00,000 | |||
| Issue price of the bond = | $ 48,20,000 | |||
| Coupon rate = | 14% | |||
| Coupon amount = (Par value X Coupon rate) | $ 6,44,000 | |||
| Half Yearly Coupon Rate = $ 644,000 / 2 = | $ 3,22,000 | |||
| Add: Discount amortization | $ 1,80,000 | |||
| Interest Expenses | $ 5,02,000 | |||
| SOLUTION: | ||||
| Journal entry of the same is post as below, | ||||
| Journal Entries | ||||
| Date | Account Title and explanation | Debit | Credit | |
| June 30. 2019 | Interest Expenses | $ 5,02,000 | ||
| Cash | $ 3,22,000 | |||
| Discount on Bonds Payable | $ 1,80,000 | |||
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