Question

Chowan Corporation issued $136,000 of 7% bonds dated January 1, 2016, for $131,421.73 on January 1, 2016. The bonds are due December 31, 2019, were issued to yield 8%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization.

1. Required:

Prepare the journal entries to record the issue of the bonds on January 1, 2016, and the interest payments on June 30, 2016, December 31, 2016, and June 30, 2017. In addition, prepare a bond interest expense and discount amortization schedule for the bonds through June 30, 2017.

2. Prepare a bond interest expense and discount amortization schedule for the bonds through June 30, 2017. Additional Instructions

CHOWAN CORPORATION
Bond Interest Expense and Discount Amortization Schedule (Partial)
Effective Interest Method 7% Bonds Sold to Yield 8%
Date	Cash Credit	Interest Expense Debit	Unamortized Discount Credit	Book Value of Bonds
01/01/16
6/30/16
12/31/16
6/30/17

Answer 1

Face Value of Bonds = $136,000
Issue Value of Bonds = $131,421.73

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $136,000 - $131,421.73
Discount on Bonds = $4,578.27

Annual Coupon Rate = 7%
Semiannual Coupon Rate = 3.5%
Semiannual Coupon = 3.5% * $136,000
Semiannual Coupon = $4,760

Answer 2.

Annual Interest Rate = 8%
Semiannual Interest Rate = 4%

Answer 1.