Question

On June 30, $185,000 of 5-year, 10% Orbit bonds are issued at $171,383 to yield a market interest rate of 12%. Interest is payable semi-annually each June 30 and December 31.

(a)

Record the purchase of these bonds on June 30 and the receipt of the first interest payment on December 31 on the books of the investor assuming the bonds are to be held to maturity. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
choose a transaction date                                                                      June 30Dec. 31	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
Dec. 31	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount
	enter an account title for the journal entry on December 31	enter a debit amount	enter a credit amount

(b)

Record the issue of the bonds on June 30 and the first interest payment on December 31 on the books of the investee (issuer). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
choose a transaction date                                                                      June 30Dec. 31	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
choose a transaction date                                                                      June 30Dec. 31	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount
	enter an account title	enter a debit amount	enter a credit amount

Answer 1

Based on the information available in the question, we can answer as follows:-

Bond Discount Amortization table

Date	Interest payment	Interest expense	Discount Amortization	Bond Carrying Amount
June 30				171,383
December 31	9,250 ($185,000* 10% * 6/12)	10,283 ($171,383* 12% * 6/12)	1,033	172,416

Requirement a:-

	Particulars	Amount	Amount
June 30	Investment in Bonds A/c	171,383
	To Cash A/c		171,383
	(To record the investment in bonds)

Based on the effective interest rate method of discount amortization:-

	Particulars	Amount	Amount
December 30	Cash A/c	8,217
	Investment in Bonds A/c	1,033
	To Interest Revenue A/c($185,000 * 10% * 6/12)		9,250
	(To record the receipt of Interest)

Requirement b:-

June 30	Cash A/c	171,383
	Discount on Bonds Payable A/c Dr.	13,617
	To Bonds Payable A/c		185,000
	(To record Bonds issued at discount)

Payment of interest(Effective interest rate method of discount amortization)

December 30	Interest expense A/c Dr. ($185,000 * 10% * 6/12)	9,250
	To Discount on bonds Payable A/c		1,033
	To Cash A/c		8,217
	(To record the interest payment on the bonds)

Please let me know if you have any questions via comments and all the best :)