Question

Discount Amortization

On the first day of the fiscal year, a company issues a $2,800,000, 10%, 9-year bond that pays semiannual interest of $140,000 ($2,800,000 × 10% × ½), receiving cash of $2,496,826.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

Answer 1

Credit Debit 156,843 $ Account Titles and Explanation Interest expense Discount on Bonds payable Cash $ $ 16,843 140,000 Working Notes: Discount on Bonds payable = $2,800,000-$2,496,826 = $303.174 Cash =$2,800,000*10%*1/2 = $140,000 Discount on bonds payable = $303,174/18 = $16,843 Interest expense = $140,000+$16,843 = $156,843