Question

 

Question: Journalizing bond issuance and interest payments

On June 30, Daughtry Limited issues 8%, 20-year bonds payable with a face value of

$130,000. The bonds are issued at 86 and pay interest on June 30 and December 31.

Requirements

1. Journalize the issuance of the bonds on June 30.

2. Journalize the semiannual interest payment and amortization of bond discount on

December 31.

Answer 1

 

Step 1: Definition of the bond

The bond is a type of long-term liability that the company issues to complete the need for a large amount of money.

Step 2: Journal entry of the issue of bond

Date	Particulars	Debit	Credit
June 30	Cash	$111,800
	Discount on Bonds Payable	$18,200
	8% Bonds Payable		$130,000
	(Being entry is made to record the issue of the bond)

 

Step 2: Payment of interest and amortization of discount

Date	Particulars	Debit	Credit
December 31	Interest Expense	$5,655
	Discount on Bonds Payable		$455
	Cash		$5,200
	(To record the semi-annual payment and amortization of discount)

 

 

 

The cash account is debited with $111,800, and the bonds payable account is credited with $130,000.