Question

On January 1, 2018, Vandenplas issues $800,000 of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 9%, the bonds will issue at $747,968.

Record the bond issue on January 1, 2018, and the first four semi-annual interest payments on June 30, 2018, December 31, 2018, June 30, 2019, and December 31, 2019.

Answer 1

Solution:

Bond Amortization Table
Semiannual interest period end	Cash interest paid	Bond Interest Expense	Discount Amortization	Unamortized Discount	Carrying Value
1-Jan-18				$52,032	$747,968
30-Jun-18	$32,000	$33,659	$1,659	$50,373	$749,627
31-Dec-18	$32,000	$33,733	$1,733	$48,640	$751,360
30-Jun-19	$32,000	$33,811	$1,811	$46,829	$753,171
31-Dec-19	$32,000	$33,893	$1,893	$44,936	$755,064

Journal Entries - Vandenplas
Date	Particulars	Debit	Credit
1-Jan-18	Cash A/c Dr	$747,968.00
	Discount on issue of bond Dr	$52,032.00
	To Bonds payable		$800,000.00
	(Being bond issued at discount)
30-Jun-18	Interest Expense Dr	$33,659.00
	To Cash		$32,000.00
	To Discount on issue of bond		$1,659.00
	(To record seminannual interest payment and discount amortization)
31-Dec-18	Interest Expense Dr	$33,733.00
	To Cash		$32,000.00
	To Discount on issue of bond		$1,733.00
	(To record seminannual interest payment and discount amortization)
30-Jun-19	Interest Expense Dr	$33,811.00
	To Cash		$32,000.00
	To Discount on issue of bond		$1,811.00
	(To record seminannual interest payment and discount amortization)
31-Dec-19	Interest Expense Dr	$33,893.00
	To Cash		$32,000.00
	To Discount on issue of bond		$1,893.00
	(To record seminannual interest payment and discount amortization)