Question

PROBLEM 5:

ON JANUARY 1, 2016 SMITH COMPANY ISSUED 8%, 20-YEAR BONDS PAYABLE WITH FACE VALUE OF $300,000. THE BONDS PAY INTEREST ON JUNE 30 AND DECEMBER 31. THE ISSUE PRICE OF THE BONDS IS 98.

INSTRUCTIONS:

JOURNALIZE THE FOLLOWING BOND TRANSACTIONS:

A) ISSUANCE OF THE BONDS ON JANUARY 1, 2016

B) PAYMENT OF INTEREST AND AMORTIZATION ON JUNE 30, 2016

Answer 1

Journal Entry :
A) ISSUANCE OF THE BONDS ON JANUARY 1, 2016
Date	Particulars		Debit	Credit
01-01-16	Cash A/c		$ 294,000.00			300000*98/100
	Discount on Bonds payable		$    6,000.00			300000/100*2
	To 8% Bonds payable			$ 300,000.00			$ 300,000.00
	(To record the issue of bonds payable at discount)
B) PAYMENT OF INTEREST AND AMORTIZATION ON JUNE 30, 2016
Date	Particulars		Debit	Credit		Debit	Credit
30-06-16	Interest expense		$ 12,300.00			$     12,300.00
	To Discount on bonds payable			$      300.00			6000.00/20
	To cash			$ 12,000.00			300000*8%*0.5
	(To record the interest expense half yearly and amortization of bond)