Question

 

Question: Schmidt Company issued $100,000, 4%, 10-year bonds payable at 98 on January 1, 2018.

6. Journalize the issuance of the bonds payable on January 1, 2018.

7. Journalize the payment of semiannual interest and amortization of the bond discount or premium (using the straight-line

amortization method) on July 1, 2018.

8. Assume the bonds payable was instead issued at 106. Journalize the issuance of the bonds payable and the payment of the

first semiannual interest and amortization of the bond discount or premium.

Answer 1

 

Step 1:  Definition of bonds issued at a discount

When the bonds are issued at less than face value then these bonds are known as bonds issued at a discount.

Step 2: Journal entries when bonds are issued at a discount

Date	Particulars	Debit	Credit
2018
January 1	Cash	$98,000
	Discount on Bonds Payable	$2,000
	Bonds Payable		$100,000
	(Being entry for the issue of the bonds at a 2% discount)
July 1	Interest Expense	$2,100
	Discount on Bonds Payable		$100
	Cash		$2,000
	(Being entry for the payment of interest and amortization of discount)

 

Step 3: Journal entries when bonds issued at premium

Date	Particulars	Debit	Credit
2018
January 1	Cash	$106,000
	Premium on Bonds Payable		$6,000
	Bonds Payable		$100,000
	(Being entry for the issue of the bonds at a 6% premium)
July 1	Interest Expense	$2,000
	Premium on Bonds Payable	$300
	Cash		$2,300
	(Being entry for the payment of interest and amortization of premium)

 

 

 

The cash account is debited with $106,000 when the bonds are issued at a premium.