Question

On the first day of the fiscal year, a company issues an $380,000, 7%, 5-year bond that pays semiannual interest of $13,300 ($380,000 × 7% × 1/2), receiving cash of $357,200. Required: Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

the journal entry used to record the issuance of the bonds is:

January 1, $380,000 in bonds payable issued

Dr Cash 357,200

Dr Discount on bonds payable 22,800

Cr Bonds payable 380,000

since the discount will be amortized using the straight line method, the $22,800 must be divided by 10 (10 semiannual payments) = $2,280

the journal entry required to record the first coupon payment is:

June 30, first interest payment on bonds payable

Dr Interest expense 15,580

Cr Cash 13,300

Cr Discount on bonds payable 2,280