Question

Wefald Company sold bonds with a face value of $675,000 for $625,000. The bonds have a coupon rate of 10 percent, mature in 10 years, and pay interest semiannually every June 30 and December 31.

All of the bonds were sold on January 1 of this year. Record the sale of the bonds on January 1 and the payment of interest on June 30 of this year, without the use of a discount account. Wefald uses the straight-line amortization method.

This problem has been solved but everyone is not using the straight line amorization without discount

Answer 1

Answer: Preparation of Journal entries
Date	Account Titles and Explanation	Debit (in $)	Credit (in $)
Jan-01	Cash	$625,000
	Discount on Bonds Payable (Bal Fig. / Plug)	$50,000
	Bonds Payable		$675,000
	(To record issue of bonds)
Jun-30	Interest Expense (Bal Fig. / Plug)	$36,250
	Discount on Bonds Payable ($50,000 / (10years *2)		$2,500
	Cash          ($675,000 x 10% x 1/2)		33,750
	(To record semi annual interest payment)