Question

The Swifty Company issued $300,000 of 10% 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 Swifty Company records straight-line amortization semiannually. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	January 1, 2017
(b)	Jan. 1, 2017July 1, 2017Dec. 31, 2017
(c)	Jan. 1, 2017July 1, 2017Dec. 31, 2017

Answer 1

Face Value of Bonds = $300,000

Issue Value of Bonds = 99% * $300,000
Issue Value of Bonds = $297,000

Discount on Bonds = Face Value of Bonds - Issue Value of Bonds
Discount on Bonds = $300,000 - $297,000
Discount on Bonds = $3,000

Annual Coupon Rate = 10.00%
Semiannual Coupon Rate = 5.00%
Semiannual Coupon = 5.00% * $300,000
Semiannual Coupon = $15,000

Time to Maturity = 5 years
Semiannual Period = 10

Semiannual Amortization of Discount = Discount on Bonds / Semiannual Period
Semiannual Amortization of Discount = $3,000 / 10
Semiannual Amortization of Discount = $300

Semiannual Interest Expense = Semiannual Coupon + Semiannual Amortization of Discount
Semiannual Interest Expense = $15,000 + $300
Semiannual Interest Expense = $15,300