In: Accounting
On January 1, 2018, Splash City issues $390,000 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 $363,500.
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2. Record the bond issue on January 1, 2018, and
the first two semiannual interest payments on June 30, 2018, and
December 31, 2018. (If no
entry is required for a transaction/event, select "No journal entry
required" in the first account field.)
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Solution 1:
Date | Cash Paid | Interest Expense | Increase in Carrying Value | Carrying Value |
01-01-2018 | $3,63,500 | |||
6/30/18 | $13,650 | $14,540 | $890 | $3,64,390 |
12/31/18 | $13,650 | $14,576 | $926 | $3,65,316 |
Solution 2:
Splash City | |||
Journal Entries | |||
Date | Account title | Debit | Credit |
01-Jan | Cash A/c Dr | $3,63,500 | |
Discount On bond payable Dr | $26,500 | ||
To bonds payable | $3,90,000 | ||
(Being bond issued at discount) | |||
Date | Account title | Debit | Credit |
30-Jun | Interest Expense Dr | $14,540 | |
To Discount on bond Payable | $890 | ||
To Cash | $13,650 | ||
(To record first Interest Payment and Amortization of Discount on issue) | |||
Date | Account title | Debit | Credit |
31-Dec | Interest Expense Dr | $14,576 | |
To Discount on bond Payable | $926 | ||
To Cash | $13,650 | ||
(To record Second Interest Payment and Amortization of Discount on issue) |