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 for June 30

Date: June 30

Transaction: Semiannual interest payment on bonds

Debit Credit Description

Interest Expense $5,250.00

Discounts on Bonds Payable $2,245.34

Cash $7,495.34

Interest Expense: Calculate the semiannual interest payment: $150,000 face value x 7% annual interest rate / 2 = $5,250.00

Discounts on Bonds Payable: Calculate the amortization of the discount for the period: $10,125 discount / (10 years x 2 semiannual payments per year) = $2,245.34

Cash: Total amount paid: $5,250.00 interest + $2,245.34 discount amortization = $7,495.34

Note: This journal entry assumes that Wintergreen uses the straight-line bond amortization method. If a different method is used, the journal entry will be different.