Question

In: Accounting

On January 1, 2013, a company issued and sold a $450,000, 7%, 10-year bond payable and...

On January 1, 2013, a company issued and sold a $450,000, 7%, 10-year bond payable and received proceeds of $445,500. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is:

Solutions

Expert Solution

  • The journal entry to record First interest payment:

Date

General Journal

Debit

Credit

30-Jun-13

Interest Expense

$                       15,975

   Discount on Bonds Payable

$                     225

   Cash [450000 x 7% x 6/12]

$                15,750

(first interest payment made)

  • Working

A

Bonds Payable face Value

$                    450,000

B

Issue Price

$                    445,500

C = A - B

Discount on Bonds payable

$                         4,500

D

Term (years)

10

E = D x 2 semi annual payments

No. of interest payments

20

F = C/E

Straight Line amortisation of Discount

$                             225


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