Question

On Jan1, year 5, ABC Co. Issued $100,000, of 5 year, 12%bonds at a market (effective) interest rate of 13%, receiving cash of $96,406. Interest on the bonds is payable semiannually on June 30 and Dec 31. Compute the following: i. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds. ii. Journalize the entries to record the following: a. The first semiannual interest payment on June 30, Yr. 5, and the amortization of the bond discount, using the interest method. b. The interest payment on Dec 31, Year 5 (second interest payment) and the amortization of the bond discount, using the interest method. c. The interest payment on June 30, Year 6(third interest payment) and the amortization of bond discount, using the interest method.

Answer 1

Answer:
i) Journal Entry for Cash Proceeds from Issue Of bonds
	Date	Account Tittle	Debit	Credit
	Jan-01	Cash A/c	$      96,406
		Discount on Issue of Bonds	$         3,594
		12% Bonds		$ 1,00,000
		( Entry made for Issuance of Bonds)
ii)
a)	30-Jun	Interest Expenses A/c	$         6,266
		Discount on Issue of Bonds A/c		$            266
		Cash A/c		$        6,000
		(Entry made for first Interest Payment and Amortization of Discount on Bonds Issue)
b)	31-Dec	Interest Expenses A/c	$         6,284
		Discount on Issue of Bonds A/c		$            284
		Cash A/c		$        6,000
		(Entry made for Second Interest Payment and Amortization of Discount on Bonds Issue)
c)	30-Jun	Interest Expenses A/c	$         6,302
		Discount on Issue of Bonds A/c		$            302
		Cash A/c		$        6,000
		(Entry made for Third Interest Payment and Amortization of Discount on Bonds Issue)
Working Note
	Schedule of Amortization of Discount on Bonds unsing Interest Method
	Period	Cash Interest	Interest Expenses	Amortization	Debit Balance in the Bond Discount	Credit Blance in the bond Payable	Book Value of Bonds
	0				$                               3,594	$                   1,00,000	$                          96,406
	1	$                                                         6,000	$         6,266	$            266	$                               3,328	$                   1,00,000	$                          96,672
	2	$                                                         6,000	$         6,284	$            284	$                               3,044	$                   1,00,000	$                          96,956
	3	$                                                         6,000	$         6,302	$            302	$                               2,742	$                   1,00,000	$                          97,258
	4	$                                                         6,000	$         6,322	$            322	$                               2,420	$                   1,00,000	$                          97,580
	5	$                                                         6,000	$         6,343	$            343	$                               2,077	$                   1,00,000	$                          97,923
	6	$                                                         6,000	$         6,365	$            365	$                               1,712	$                   1,00,000	$                          98,288
	7	$                                                         6,000	$         6,389	$            389	$                               1,324	$                   1,00,000	$                          98,676
	8	$                                                         6,000	$         6,414	$            414	$                                  910	$                   1,00,000	$                          99,090
	9	$                                                         6,000	$         6,441	$            441	$                                  469	$                   1,00,000	$                          99,531
	10	$                                                         6,000	$         6,470	$            470	$                                      -	$                   1,00,000	$                      1,00,000