Question

On the first day of the fiscal year, a company issues a $2,600,000, 7%, 6-year bond that pays semiannual interest of $91,000 ($2,600,000 × 7% × ½), receiving cash of $2,477,994. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

Answer 1

Dr interest expense( 10,167.17+91,000) $ 101,167.17

Cr cash $91,000.00

Cr discount on bonds payable $ 10,167.17

Step-by-step explanation:

The discount on bond issuance is the difference between the cash proceeds received and the face value of the bonds.

discount on bonds payable=$2,600,000-$2,477,994=$122,006.00

amortization of discount=discount/number of semiannual interest payable

in 6 years,12 semiannual coupons are payable

amortization of discount=$122,006.00 /12=$10,167.17