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On February 1, 2018, Fox Corporation issued 9% bonds dated February 1, 2018, with a face...

On February 1, 2018, Fox Corporation issued 9% bonds dated February 1, 2018, with a face amount of $240,000. The bonds sold for $219,410 and mature in 20 years. The effective interest rate for these bonds was 10%. 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.

Solutions

Expert Solution

1.the following is the journal entry to record the bond issuance on february 1, 2018.

1. Cash a/c $219,410
discount on bonds payable a/c $20,590
................To Bonds payable a/c $240,000
(being bonds of face value issued for cash $219,410, discout being $240,000 - 219,410 =>$20,590)

2. entry to record interest on july 31,2018.

2. Interest expense a/c 11,314.75
............To Discount on bonds payable a/c 514.75
............To Cash a/c 10,800
(being interest expense recorded)

note: discount on bonds payable is amortised on straight line basis,

=>$20,590 / (20 years * 2 semi annual payments)

=>$20,590 / 40 semi annual periods

=>$514.75.

cash paid will be =face value * coupon rate * 1/2

=>$240,000 * 9% * 1/2

=>$10,800.

interest expense will be = cash paid + discount amortised

=>$10,800 + $514.75

=>$11,314.75.

3. journal entry on december 31,2018.

the following is the adjusting entry on december 31,2018.

3 Interest expense $9,428.96
.........To discount on bonds payable a/c $428.96
.........To Interest payable a/c $9,000

note:

from july 31 to december 31 we have 5 months.

interest expense will be $11,314.75 / 6 * 5 =>$9,428.96.

discount on bonds payable will be = $514.75/6*5 =>428.96

interest payable will be = $10,800 / 6 *5 =>$9,000.

4. journal entry on january 31.

4 Interest expense $1,885.79
Interest payable a/c $9,000
.........To Discount on bonds payable $85.79
.........To Cash a/c $10,800

interest expense will be= $11,314.75 / 6 *1 =>$1,885.79

interest payable as shown in journal entry 3.

discount on bonds payable = $514.75 /6 =>$85.79.

cash = $240,000*9%*1/2 =>$10,800.

ekkarill92 answered 1 year ago
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