Question

On January 1, 2021, Splash City issues $300,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.

Assuming the market interest rate on the issue date is 8%, the bonds will issue at $279,615.

2. Record the bond issue on January 1, 2021, and the first two semiannual interest payments on June 30, 2021, and December 31, 2021.

• Record the bond issue.

	Date General Journal Debit Credit January 01, 2021

• Record the first semiannual interest payment.

	Date General Journal Debit Credit June 30, 2021

• Record the second semiannual interest payment.

Note: Enter debits before credits.

	Date General Journal Debit Credit December 31, 2021

Answer 1

WORKING NOTES : 1
	Calculation of coupon amount and amortization of Discount per period
	Par Value of the bonds =	$                3,00,000
	Issue price of the bond	$                2,79,615
	Discount on issuance of bonds	$                   20,385
	Coupon rate		7%
	Coupon amount =	$                   21,000
	Half year coupon amount =	$                   10,500
	Life of the Bonds =	10	Years
	Period of the bonds =	20	Period
	Discount on issue of Bonds	$                   20,385
	Divide By		"/" By
	Period of The Bonds	20	Periods
	Discount amortization	$                      1,019	Per Periods
WORKING NOTES : 2
	calculation of interest expenes per periods
	Coupon Amount Per half year	$                   10,500
	Add: Discount value	$                      1,019
	Interest Expenses per half year	$                   11,519
ANSWER =1
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Jan 01,2021	Cash	$                2,79,615
		Discount on issuance of Bonds	$                   20,385
		Bonds Payable		$             3,00,000
		( Record the issuance of the bonds)
ANSWER =2
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	June 30, 2021	Interest Expenses	$                   11,519
		Discount on issuance of Bond		$                   1,019
		Cash		$                10,500
		(Record the payment of interest expenses )
ANSWER = 3)
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec 31, 2021	Interest Expenses	$                   11,519
		Discount on issuance of Bond		$                   1,019
		Cash		$                10,500
		(Record the payment of interest expenses )