Question

Calculato

2. On the first day of the fiscal year, a company issues a $952,000, 6%, 10-year bond that pays semiannual interest of $28,560 ($952,000 × 6% × 1/2), receiving cash of $999,600.

	Required:
	Journalize the entry to record the first interest payment and amortization of premium using the straight-line method. Refer to the Chart of Accounts for exact wording of account titles. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method on December 31. JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2 3

On the first day of the fiscal year, a company issues an $946,000, 8%, 5-year bond that pays semiannual interest of $37,840 ($946,000 × 8% × 1/2), receiving cash of $889,240.

Answer 1

Question no 2

Solution

Bond issue price	$ 9,99,600.00
Face value	$ 9,52,000.00
Premium on bond	$     47,600.00
Number of Interest payments (10 years x 2 )	20
Premium to be amortized per payment	$       2,380.00
Interest on bond	$     28,560.00

Date	Description	Post. Ref	Debit	Credit
December 31	Bond interest expense		$ 26,180
	Premium on Bond payable		$    2,380
	Cash			$     28,560
	(Interest on bond paid and Premium amortized)

Question says that bond is issued on the first day of fiscal year so I have assumed that first day of year is july 1 since the question also asks for first interest payment on December 1. If year starts at jan 1 then first interest payment would have been on june 31.

Although the entries and amount would still be same in all interest payments because of straight line amortization.

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Part 2

Bond issue price	$ 8,89,240.00
Face value	$ 9,46,000.00
Discount on bond	$     56,760.00
Number of Interest payments (5 years x 2)	10
Discount to be amortized per payment	$       5,676.00
Interest on bond	$     37,840.00

Date	Description	Post. Ref	Debit	Credit
December 31	Bond interest expense		$ 43,516.00
	Discount on bonds payable			$         5,676.00
	Cash			$      37,840.00
	(Interest on bond paid and Discount amortized)