Question
In: Accounting
Shawn issues $100,000 10 % par value bonds for $96,156. The bonds have a 4 year...
Shawn issues $100,000 10 % par value bonds for $96,156. The bonds
have a 4 year life with semiannual interest payments. Record the
entry on the issue date, the first interest payment, and the entry
to retire the bonds. What will be the total interest payments for
this bond?
Solutions
Expert Solution
| Journal entries | ||||||
| S.no. | Accounts title and explanations | Debit $ | Credit $ | |||
| a. | Cash account | 96156 | ||||
| Discount on bonds payable | 3844 | |||||
| Bonds payable | 100000 | |||||
| (for issuance of bonds) | ||||||
| b. | Interest expense | 5480.5 | ||||
| Cash account (100,000*10%*6/12) | 5,000 | |||||
| Discount on bonds payable (3844/8) | 480.5 | |||||
| (for interst payment made) | ||||||
| c. | Bonds payable | 1,00,000 | ||||
| Cash account | 1,00,000 | |||||
| (for retirement of bonds) | ||||||
| Total Interest payment | ||||||
| 8 payments of 5000 each | 40,000 | |||||
| Maturity amount paid | 1,00,000 | |||||
| Total repayment | 1,40,000 | |||||
| Less: Amount borrowed | 96,156 | |||||
| Total Interest payment | 43,844 |
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