Question

Pennington Corporation issued 5-year, 8.6% bonds with a total face value of $700,000 on January 1, 2021, for $680,000. The bonds pay interest on June 30 and December 31 of each year.

	Required:
1.	Prepare an amortization table using straight line.
2.	Prepare the entries to recognize the bond issuance and the interest payments made on June 30, 2021, and December 31, 2021.

Answer 1

	Face value				700,000
	issue price				-680,000
	Discount on bonds				20,000
	amortization of bonds =20,000/10
			2000
	interest paid   = 700,000*8.6%*1/2
			30100
1)		Amortization schecule
	date	interest	interest	Discount	Carrying
		paid	expense	amortized	value
	1/1/2021				680,000
	6/30/2021	30100	32100	2000	682,000
	12/31/2021	30100	32100	2000	684,000
	6/30/2022	30100	32100	2000	686,000
	12/31/2022	30100	32100	2000	688,000
	6/30/2023	30100	32100	2000	690,000
	12/31/2023	30100	32100	2000	692,000
	6/30/2024	30100	32100	2000	694,000
	12/31/2024	30100	32100	2000	696,000
	6/30/2025	30100	32100	2000	698,000
	12/31/2025	30100	32100	2000	700,000
2)		Journal Entries
	Date	General Journal				debit	Credit
	1/1/2021	cash				680,000
		discount on bonds payable				20,000
		bonds payable					700,000
	6/30/2021	interest expense				32100
		discount on bonds payable					2000
		cash					30100
	12/31/2021
		interest expense				32100
		discount on bonds payable					2000
		cash					30100