Question

a company issued $4,920,000 of 6%, 10-year bonds on december 31, 2022 for $4,248,000 to yield an effective annual rate of 8%. interest is paid to bondholders annually. the effective interest method of amortization is to be used. the journal entry to be recorded at the end of the second year (on december 31, 2024) for the payment of interest and the amortization of discount will include a

Answer 1

The journal entry will include payment of interest and amortization of discount.

Step-by-step explanation:

The journal entry to be recorded at the end of the second year (on December 31, 2024) for the payment of interest and the amortization of discount will include two parts:

1. Payment of Interest:

The company will debit the Interest Expense account and credit the Cash account for the amount of interest due. In this case, the company will debit the Interest Expense account for the interest calculated based on the face value of the bonds and the interest rate.

2. Amortization of Discount:

The company will debit the Discount on Bonds Payable account and credit the Bond Interest Expense account for the amount of discount to be amortized. The amortization of discount represents the reduction in the carrying value of the bonds over time. The discount is amortized over the life of the bond using the effective interest method, which results in a higher interest expense in the earlier years.