Question

The board of directors of Belmont, LLC, authorized the issuance of $600,000 face value, 20-year, 5 percent bonds, dated March 1, 2016, and maturing on March 1, 2036. Interest is payable semiannually on September 1 and March 1.

DATE	TRANSACTIONS FOR 2016
Jun. 1	Issued bonds with a face value of $390,000 at 97.63 plus accrued interest from March 1. (When bonds are issued between interest payment dates, the accrued interest is paid to the corporation by the purchaser. Credit Bond Interest Expense.)
Sept. 1	Paid the semiannual bond interest and amortized the discount for three months. (Make two entries. Use the straight-line method to compute the amortization.)
Dec. 31	Recorded an adjusting entry to accrue the interest and to amortize the discount. (Make one entry.)
31	Closed the Bond Interest Expense account to the Income Summary account.

DATE	TRANSACTIONS FOR 2017
Jan. 1	Reversed the adjusting entry made on December 31, 2016.
Mar. 1	Paid the semiannual bond interest and amortized the discount on the outstanding bonds.

1.	Record the following transactions in general journal form.

Issued bonds with a face value of $390,000 at 97.63 plus accrued interest from March 1.

Record the payment of semiannual bond interest for the bond issued on June 1.

Record the amortization of the discount for the bond issued on June 1.

Recorded an adjusting entry to accrue the interest and to amortize the discount.

Closed the Bond Interest Expense account to the Income Summary account.

Reversed the adjusting entry made on December 31, 2016.

Paid the semiannual bond interest and amortized the discount on the outstanding bonds.

Analyze:

What is the balance of the Discount on Bonds Payable account on December 31, 2016?

Answer 1

No	Date	General journal	Debit	Credit	Comments
1	1-Jun-16	Cash	$ 380,757		Cash received= 390000*97.63%
		Discount on bonds payable	$       9,243		Par value- cash received
		To Bonds payable		$ 390,000	Par value of bonds payable
1	1-Jun-16	Cash	$       4,875		Accrued interest received on bonds issued for 3 months
		Bond interest expense		$       4,875	390000*5%*3/12
2	1-Sep-16	Bond interest expense	$       9,750		Interest paid for 6 months
		Cash		$       9,750	390000*5%*6/12
3	1-Sep-16	Bond interest expense	$           117		Amortization of discount on bonds payable for 3 months of 19.75 years total life
		Discount on bonds payable		$           117	11376/19.75 *3/12
4	31-Dec-16	Bond interest expense	$       6,656		Amortisation plus accrued interest expense
		Interest on bonds payable		6500	390000*5%*4/12
		Discount on bonds payable		156	9243/19.75 *4/12
5	31-Dec-16	Profit and loss A/c	$     11,648		Closed net bond interest expense
		Bond interest expense		$     11,648	=-4875+9750+117+6656
5	1-Jan-17	Bond interest expense		$       6,656	Reversal of adjusting entry
		Interest on bonds payable	6500		Reversal of adjusting entry
		Discount on bonds payable	156		Reversal of adjusting entry
6	1-Mar-17	Bond interest expense	$       9,984		Interest paid plus amortization
		Cash		9750	390000*5%*6/12
		Discount on bonds payable		234	9243/19.75 *6/12

The balance of the Discount on Bonds Payable account on December 31, 2016

=9243-117-156

=$8970