Question

On January 31, 2016 Company M issued 10 year, 4% bonds with a face value of $100,000. The bonds were issued at 94 and pay interest on January 31 and July 31. Company M amortizes their bonds by the straight-line method. Record (a) issuance of the bonds on January 31, (b) the semi-annual interest payment and discount amortization on July 31, and the interest accrual and discount amortization on December 31.

Answer 1

Answer:

Journal Entry

Date	Particulars	Amount dr.	Amount cr.
31 jan 2016	Cash/Bank a/cc dr. Discount on Bond a/cc dr.	$94,000 $6,000
	To 4% Bond		$1,00,000
	( Being 4% Bond issue at discount 94 per )
31 july 2016	Interest on bond acc dr.	$2,000
	To 4% Bond		$2,000
	(Being interest due 100000*4%*6/12)
31 july 2020	4% Bond A/cc dr.	$2000
	To Cash /Bank a/cc		$2,000
	(Being Interest Paid)

c)

31 Dec. 2016	Interest on bond acc dr.	$1,667
	To 4% Bond		$1,667
	(Being interest due 100000*4%*5/12)
31 dec 2020	4% Bond A/cc dr.	$1,667
	To Cash /Bank a/cc		$1,667
	(Being Interest Paid)

31 dec 2020 Profit & Loss Acc Dr. $3,667

To Interest on Bond $3,667

( Being Interest charged to Profit and loss account )