Question

Issued Bonds at a Discount (Effective Interest

Crafty Corporation issued $475,000 of 5%, 7-year bonds on December 31, 2013, for $448,484. Interest is paid annually on December 31. The market rate of interest is 6%.

Prepare the journal entry for December 31, 2014 and 2015. If an amount box does not require an entry, leave it blank. If required, round your answers to the nearest whole dollar

Answer 1

Answer

• Journal entries asked

Date	Accounts title	Debit	Credit
31-Dec-14	Interest Expense	$26,909
	Discount on Bonds Payable		$3,159
	Cash		$23,750
	(Interest paid)
31-Dec-15	Interest Expense	$27,099
	Discount on Bonds Payable		$3,349
	Cash		$23,750
	(Interest paid)

• Working

Period	Cash Payment (Credit)	Interest Expense (Debit)	Discount on Bonds Payable (Credit)	Discount on Bonds Payable Balance	Carrying Value
31-Dec-13				$26,516	$448,484
31-Dec-14	$23,750	$26,909	$3,159	$23,357	$451,643
31-Dec-15	$23,750	$27,099	$3,349	$20,008	$454,992