Question

QS 14-7 Recording bond issuance and discount amortization LO P1, P2

Sylvestor Company issues 10%, five-year bonds, on December 31, 2016, with a par value of $110,000 and semiannual interest payments.

Semiannual Period-End			Unamortized Discount			Carrying Value
(0)	12/31/2016		$	8,200		$	101,800
(1)	6/30/2017			7,380			102,620
(2)	12/31/2017			6,560			103,440

Use the above bond amortization table and prepare journal entries to record

(a) the issuance of bonds on December 31, 2016

(b) the first interest payment on June 30, 2017

(c) the second interest payment on December 31, 2017.
  

Answer 1

S.no.	Date	Account titles and explanations	Debit	Credit
(a)	December 31, 2016	Cash	$       1,01,800
		Discount on Bonds Payable	$             8,200
		Bonds Payable		$       1,10,000
		(To record issuance of bonds)
(b)	June 30, 2017	Interest Expense	$             6,320
		Cash		$             5,500
		Discount on bonds payable		$ 820
		(to record interest expense)
	Working:
	Discount on bonds payable amortized		$             8,200	-	$    7,380	=	$ 820
	Coupon Interest paid in cash		$       1,10,000	x 5%		=	$       5,500
			(Par Value x Semi annual Coupon rate)
	Interest Expense						$       6,320
(c)	December 31, 2017	Interest Expense	$             6,320
		Cash		$             5,500
		Discount on bonds payable		$ 820
		(to record interest expense)
	Working:
	Discount on bonds payable amortized		$             7,380	-	$    6,560	=	$ 820
	Coupon Interest paid in cash		$       1,10,000	x 5%		=	$       5,500
			(Par Value x Semi annual Coupon rate)
	Interest Expense						$       6,320