Question

Home depot issued a $1,000,000, 6% bond, at 92 on January 1, 2018 maturing in 5 years, interest paid semiannually, on each June 30 and December 31. The market rate of interest on January l, was 8%. Required: Prepare an effective interest schedule for 2 years, 2018 and 2019. Prepare the journal entry to record the interest on June 30, 2018

Answer 1

Date	Amount Paid	Interest Expense	Discount Amortization	Bond Carrying Value
Jan 1, 2018				$ 920,000
June 30, 2018	$ 30,000	$ 36,800	$ 6,800	926,800
Dec 31, 2018	30,000	37,072	7,072	933,872
June 30, 2019	30,000	37,355	7,355	941,227
Dec 31, 2019	30,000	37,649	7,649	948,876

Date	Account Titles	Debit	Credit
		$	$
June 30, 2018	Interest Expense ( $ 920,000 x 0.04 )	36,800
	Discount on Bonds Payable		6,800
	Cash		30,000