Question

On December 31 Wintergreen, Incorporated, issued $150,000 of 7 percent, 10-year bonds at a price of 93.25. Wintergreen received $139,875 when it issued the bonds (or $150,000 × .9325). After recording the related entry, Bonds Payable had a balance of $150,000 and Discounts on Bonds Payable had a balance of $10,125. Wintergreen uses the straight-line bond amortization method. The first semiannual interest payment was made on June 30 of the next year.

Complete the necessary journal entry for June 30 by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

Journal entry: Interest Expense 5250, Discount on Bonds Payable 506.25, Bonds Payable 9618.75.

Journal entry for June 30:

| Account | Debit | Credit |

| Interest Expense | 5,250.00 | |

| Discounts on Bonds Payable | | 506.25 |

| Bonds Payable | | 9,618.75 |

Step-by-step explanation:

Interest expense is debited for the amount of interest paid on the bonds for the period (5,250.00).

Discounts on bonds payable are credited for the amount of discount amortized for the period (506.25).

Bonds payable are credited for the difference between the face value of the bonds and the carrying value of the bonds at the end of the period (9,618.75).

The carrying value of the bonds at the end of the period is calculated as follows:

Carrying value at beginning of period = Issue price + Discount on bonds payable

Carrying value at beginning of period = 139,875 + 10,125

Carrying value at beginning of period = 150,000

Amortization per period = Discount on bonds payable / (Term * 2)

Amortization per period = 10,125 / (10 * 2)

Amortization per period = 506.25

Carrying value at end of period = Carrying value at beginning of period - Amortization per period

Carrying value at end of period = 150,000 - 506.25

Carrying value at end of period = 149,493.75

The interest payment is calculated as follows:

Interest payment = Face value of bonds * Interest rate * Time

Interest payment = 150,000 * 7% * 1/2

Interest payment = 5,250.00

The discount on bonds payable is amortized using the straight-line method, which means that the same amount of discount is amortized each period. The amount of discount amortized each period is calculated as follows:

Amortization per period = Discount on bonds payable / (Term * 2)

Amortization per period = 10,125 / (10 * 2)

Amortization per period = 506.25

The bonds payable account is credited for the difference between the face value of the bonds and the carrying value of the bonds at the end of the period. This is because the carrying value of the bonds represents the amount that the company still owes on the bonds.