Question

January 1, 2019 ABEF company issued 5-year bonds with a par value of $1,000,000 and a 6% annual stated rate of interest. The issue price of the bond was $950,000. Interest payments are made semiannually. Any premiums or discounts should amortized using the straight line method. (Remember when amortizing pay attention to how many periods) Prepare Journal Entries for the following A) Record the issuance of the bonds B) Record interest expense at June 30, 2019 C) Record interest expense on December 31, 2019.

Answer 1

Solution:

Date	Account titles and Explanation	Debit	Credit
1/1/2019	Cash	$          950,000
	Discount on Bands Payable	$             50,000
	Bonds Payable		$        1,000,000
	( To record bonds issue)
30/6/19	Interest Expense	$             35,000
	Discount on Bonds Payable [50000/10 Periods]		$                5,000
	Cash [1000000*6%*6/12]		$              30,000
	( To record interest expense paid)
31/12/19	Interest Expense	$             35,000
	Discount on Bonds Payable [50000/10 Periods]		$                5,000
	Cash [1000000*6%*6/12]		$              30,000
	( To record interest expense paid)

Working:

STRAIGHT-LINE METHOD
Annual Interest Periods	Interest to Be Paid[a]	Interest Expense to Be Recorded [a+b]	Discount Amortization[b]	Unamortized Discount	Bonds Carrying Amount
1/1/2019				$           50,000	$             950,000
30/6/19	$                     35,000	$                         30,000	$                        5,000	$           45,000	$             955,000
31/12/19	$                     35,000	$                         30,000	$                        5,000	$           40,000	$             960,000
30/6/20	$                     35,000	$                         30,000	$                        5,000	$           35,000	$             965,000
31/12/20	$                     35,000	$                         30,000	$                        5,000	$           30,000	$             970,000
30/6/21	$                     35,000	$                         30,000	$                        5,000	$           25,000	$             975,000
31/12/21	$                     35,000	$                         30,000	$                        5,000	$           20,000	$             980,000
30/6/22	$                     35,000	$                         30,000	$                        5,000	$           15,000	$             985,000
31/12/22	$                     35,000	$                         30,000	$                        5,000	$           10,000	$             990,000
30/6/23	$                     35,000	$                         30,000	$                        5,000	$             5,000	$             995,000
31/12/23	$                     35,000	$                         30,000	$                        5,000	$                    -	$          1,000,000