Question

On the first day of the fiscal year, a company issues a $8,800,000, 7%, 10-year bond that pays semiannual interest of $308,000 ($8,800,000 × 7% × ½), receiving cash of $7,655,303. 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

The journal entry to record the issuance of the bonds:

Dr January 1, 202x, bonds are issued at a discount

Dr Cash 7,655,303

Dr Discount on bonds payable 1,144,697

Cr Bonds payable 8,800,000

using straight line amortization:

$1,144,697 / 20 coupons = $57,234.85 per coupon

July 1, 202x, first coupon payment

Dr Interest expense 365,234.85

Cr Cash 308,000

Cr Discount on bonds payable 57,234.85