Question

On January 1, 2020, Sponsler Corporation issued $1,000,000, 4%, 5-year bonds. The bonds were sold to yield an effective interest rate of 6%. Interest is paid quarterly on March 31, June 30, September 30, and December 31. The company uses the effective interest method of amortization. Prepare the January 1, March 30, and June 30 journal entries for 2020

Please show the equations for how you get the numbers in the entries.

Answer 1

Date	Account title and explanation	Debit	Credit
1-Jan-20	Cash	$914,157
	Discount on bonds payable	$85,843
	Bonds payable		$1,000,000
	[Cash received for bonds payable]
30-Mar-20	Interest expense	$13,712
	Discount on bonds payable		$3,712
	Cash		$10,000
	[To record payment of interest expense]
30-Jun-20	Interest expense	$13,768
	Discount on bonds payable		$3,768
	Cash		$10,000
	[To record payment of interest expense]

	Amount	PV Factor @ 1.5%	Discounted PV
Principal	$1,000,000	0.74247	$742,470
Interest	$10,000	17.16864	$171,686
Issue Price			$914,157
Less: Face Value			$1,000,000
Discount			$85,843
Amortization Table
Date	Cash Interest	Interest Expense @ 1.5%	Discount Amortization	Discount	Bond Carrying Amount
1-Jan-20				$85,843	$914,157
30-Mar-20	$10,000	$13,712	$3,712	$82,131	$917,869
30-Jun-20	$10,000	$13,768	$3,768	$78,363	$921,637
	$10,000	$13,825	$3,825	$74,538	$925,462
	$10,000	$13,882	$3,882	$70,656	$929,344

Effective Interest Rate = 6%/4 = 1.5%

Cash Interest Rate = 4%/4 = 1%

Number of Payments = 5*4 = 20