Question

Legacy issues $580,000 of 8.0%, four-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31. They are issued at $507,959, and their market rate is 12% at the issue date.

Prepare the journal entries to record the first two interest payments.

I got DEBIT- 30478

CREDIT DISCOUNT ON BONDS PAYABLE- 7278

CREDIT CASH-23200

and this is wrong for jun 30

Answer 1

Legacy issues $ 5,80,000 of 8 % ,4 year bonds on 1/1/2018 for $ 5,07,959 and the market rate= 12%

Interest is paid semiannually on June 30 and December 31

Therefore discount on issue of bonds= $ 5,80,000-$ 507,959=$ 72,041( This should be amortised on straight line basis over the 8 periods)   

Journal Entry to record the first two interest payments are as follows:

June 30 and dec 31        Interest Expense a/c-------------Dr $ 32,205

                                                    To Discount on bonds payable a/c-(Cr) $ 9005

                                                    To Cash( Cr) a/c------------------------------$23,200