Question

On June​ 30, Daughtry Limited issues 8 %​, ​20-year bonds payable with a face value of $ 130 comma 000. The bonds are issued at 86 and pay interest on June 30 and December 31. ​(Assume bonds payable are amortized using the​ straight-line amortization​ method.)

Requirements
1. Journalize the issuance of the bonds on June 30.
2. Journalize the semiannual interest payment and amortization of the bond discount on December 31.
Requirement 1. Journalize the issuance of the bonds on June 30. ​(Record debits​ first, then credits. Select explanations on the last line of the journal​ entry.)
Requirement 2. Journalize the serniannual interest payment and amortization of the bond discount on December 31. (Record debits first, then credits. Select explanations on the last line of the journal entry.)

Answer 1

June 30

Dr Cash 111,800

Dr Discount on bonds payable 18,200

Cr Bonds payable 130,000

Dec 31

Dr Interest expense 5,655

Cr Discount on bonds payable 455

Cr Cash 5,200

Step-by-step explanation:

1. Preparation of the Journal entry fornthe issuance of the bonds on June 30.

June 30

Dr Cash 111,800

(86%×130,000)

Dr Discount on bonds payable 18,200

(100%-86%×130,000)

Cr Bonds payable 130,000

(To record bond issue)

2. Preparation of the Journal entry for the semiannual interest payment as well as the amortization of the bond discount on December 31.

Dec 31

Dr Interest expense 5,655

Cr Discount on bonds payable 455

(18,200/40)

Cr Cash (130,000*8%*6/12) 5,200

(To record interest)