Question

In: Accounting

On January 1, 2018, Splash City issues $390,000 of 7% bonds, due in 10 years, with...

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.

Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value
1/1/18
6/30/18
12/31/18

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.)

Journal entry worksheet
  • Record the bond issue.
Note: Enter debits before credits.
Date General Journal Debit Credit
January 01, 2018

Solutions

Expert Solution

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)

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