Question

Problem 14-5A Straight-Line: Amortization of bond premium and discount LO P1, P2, P3

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Legacy issues $660,000 of 5.5%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $648,412 and their market rate is 6% at the issue date.

Problem 14-5A Part 4

4. Prepare the journal entries to record the first two interest payments.

Answer 1

Working note

Following entry is passed when bond was issued

Date	Description	Debit	Credit
Dec 31 2011	Cash	$      648,412
	Discount on bonds Payable	$     11,588
	Bonds payable		$    660,000
	(Issue of bonds )

Bond issue price	$     648,412.00
Face value	$     660,000.00
Discount on bond	$        11,588.00
Number of Interest payments	8
Discount to be amortized per payment	$          1,448.50
Interest on bond	$        18,150.00

Answer-

Date	Description	Debit	Credit
30-Jun-17	Bond interest expense	$ 19,598.50
	Discount on bonds Payable		$ 1,448.50
	Cash		$ 18,150.00
	(Interest on bond paid and Discount amortized)
31-Dec-17	Bond interest expense	$ 19,598.50
	Discount on bonds Payable		$ 1,448.50
	Cash		$ 18,150.00
	(Interest on bond paid and Discount amortized)