Question

On February 1, 2018, Fox Corporation issued 7% bonds dated February 1, 2018, with a face amount of $120,000. The bonds sold for $108,125 and mature in 20 years. The effective interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and January 31. Fox's fiscal year is the calendar year. Fox uses the straight-line method of amortization.

Required: 1. Prepare the journal entry to record the bond issuance on February 1, 2018.

2. Prepare the entry to record interest on July 31, 2018.

3. Prepare the necessary journal entry on December 31, 2018.

4. Prepare the necessary journal entry on January 31, 2019.

Answer 1

Discount on issue of Bond =$120,000 - $108,125 =$11,875
Discount amortized at each 6 month period =$11,875 / 40 =$297
Interest paid for each 6 months period =$120,000*7%*6/12 =$4,200
Interest expense for each 6 month period =$4,200 + $297 =$4,497
Date	Accounts and explanation	Debit(in $)	Credit(in $)
Feb 1,2018	Cash	108125
	Discount on Bond Payable	11875
	Bond Payable		120000
	(to bond issued at discount)
Jul 31,2018	Interest expenses	4497
	Discount on Bond Payable		297
	Cash		4200
	(to interest paid for 1st period)
Dec 31,2018	Interest expenses($4,497*5/6)	3748
	Discount on Bond Payable($297*5/6)		248
	Interest Payable($4200*5/6)		3500
	(to interest accrued for 2nd period)
Jan 31,2019	Interest Payable	3500
	Interest expenses(4497*1/6)	749
	Discount on Bond Payable($297*1/6)		49
	Cash		4200
	(to interest paid for 2nd pariod)