Question

On the first day of the fiscal year, a company issues a $2,000,000, 9%, 5-year bond that pays semiannual interest of $90,000 ($2,000,000 × 9% × ½), receiving cash of $1,922,782.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

Answer 1

	Journal entries
	Event	Dr/Cr	Particulars	Debit $	Credit $
	Issue of bond at the beginning of the year	Debit	Cash/Bank	1,922,782
		Debit	Discount on issue of bond	77,218
		Credit	Bond Payable		2,000,000
			(To record the issue of bond at discount)
	First interest payment	Debit	Interest expenses	90,000
		Credit	Cash/Bank		90,000
			(To record the payment of semi annual interest at the rate of9%)
	Amortization of discount of issue of bonds at first semi annual interest payment date	Debit	Interest expenses	7,721.80
		Credit	Discount on issue of bond		7,721.80
			(To record the discount on issue of bonds in the profit and loss account)
			(77,218/10 semi annual interest)