Question

The Sandhill Company issued $330,000 of 9% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 99. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Sandhill Company records straight-line amortization semiannually.

Answer 1

the journal entry to record the issuance:

January 1, 2017, bonds are issued at a discount

Dr Cash 326,700

Dr Discount on bonds payable 3,300

Cr Bonds payable 330,000

discount amortization per coupon payment = $3,300 / 10 payments = $330

the journal entry to record the first coupon payment:

July 1, 2017, first coupon payment

Dr Interest expense 15,180

Cr Cash 14,850

Cr Discount on bonds payable 330

the journal entry to record accrued interest:

December 31, 2017, accrued interest

Dr Interest expense 15,180

Cr Interest payable 14,850

Cr Discount on bonds payable 330