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Khaled’s company issued and sold $500,000 bond payable on January 1, 2019, with an interest rate...

Khaled’s company issued and sold $500,000 bond payable on January 1, 2019, with an interest rate of 6%, 5-year and received $465,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. Prepare the journal entries to record these transactions on January 1st, at the first interest payment and at the maturity date?
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Answer #1

Journal

January 1, 2019 Cash 465,000
Discount on bonds payable 35,000
Bonds payable 500,000
June 30, 2019 Interest expense 18,500
Discount on bonds payable 3,500
Cash 15,000
December 31, 2009 Interest expense 18,500
Discount on bonds payable 3,500
Cash 15,000

Semi annual interest payment = 500,000 x 6% x 6/12

= $15,000

Semi annual amortization of bond discount = 35,000/10

= $3,500

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