Question

Paulson Company issues 6%, four-year bonds, on December 31, 2017, with a par value of $100,000 and semiannual interest payments.

Semiannual Period-End			Unamortized Discount			Carrying Value
(0)	12/31/2017		$	6,733		$	93,267
(1)	6/30/2018			5,891			94,109
(2)	12/31/2018			5,049			94,951

     
Use the above straight-line bond amortization table and prepare journal entries for the following.

(a) The issuance of bonds on December 31, 2017.

(b) The first interest payment on June 30, 2018.

(c) The second interest payment on December 31, 2018.

Record the issue of bonds with a par value of $100,000 cash December 31, 2017.

Date	General Journal	Debit	Credit
Dec 31, 2017

Record the interest payment and amortization on June 30, 2018.

Date	General Journal	Debit	Credit
Jun 30, 2018

Record the interest payment and amortization on December 31, 2018.

Date	General Journal	Debit	Credit
Dec 31, 2018

Answer 1

The following are the required journal entries:

date	general journal	Debit	Credit
a.	cash a/c....(carrying value)	$93,267
	Discount on bonds payable a/c.....(unamortised discount)	$6,733
	............To bonds payable a/c.....(face value)		$100,000
	(being bonds payable issued for 93,267)

note: cash paid towards interest every semi annual period = $100,000* 6% *1/2 =>$3,000.

interest expense = cash paid + discount on bondspayable written off.

2. entry on june 30:

june 30	Interest expense a/c	$3,842
	............To discount on bonds payable a/c		$842
	............To Cash a/c		$3,000
	discount on bonds payable = unamortised discount on 31 dec - unamortised discount on 30th june) (6733 - 5891 =>$2842)

3.second interest payment on december 31,2018.

dec 31 ,2018	Interest expense a/c	$3,842
.	.......To discount on bonds payable a/c		$842
....	........To Cash a/c		$3,000
	(discount on bonds payable = unamortised discount on 30th june - unamortised discount on 31st december 2018 =>5891 -5042 =>$842)