Question

Discount Amortization On the first day of the fiscal year, a company issues a $7,800,000, 10 % , 8-year bond that pays semiannual interest of $390,000 ($7,800,000 x 10% x ) receiving cash of $6,657,171. Journalize the first interest payment and the amortization of the related bend discount. Raund to the nearest dolar. If an amount box does not require an entry, leave it blank

Answer 1

Solution 1:

Journal Entries
Event	Particulars	Debit	Credit
1	Interest Expense Dr	$461,427.00
	To Discount on bond payable [($7,800,000 - $6,657,171)/16]		$71,427.00
	To Cash		$390,000.00
	(Being first semiannual interest payment made and discount amortized)

Solution 2a:

Time interest earned = Earning before interest and taxes / Interest expense

Current year = ($2,926,000 + $220,000) / $220,000 = 14.3 times

Prior year = ($3,405,600 + $264,000) / $264,000 = 13.9 times

Solution 2b:

Yes, number of time interest charges are earned improving.