Question

Chowan Corporation issued $115,000 of 9% bonds dated January 1, 2016, for $111,283.65 on January 1, 2016. The bonds are due December 31, 2019, were issued to yield 10%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization.

Required:

Prepare the journal entries to record the issue of the bonds on January 1, 2016, and the interest payments on June 30, 2016, December 31, 2016, and June 30, 2017. In addition, prepare a bond interest expense and discount amortization schedule for the bonds through June 30, 2017.

Answer 1

Amortization table
Date	Cash	Interest	Discount	Unamortized	Carrying
	Interest	Expense	Amortized	Discount	value
01.01.16				3716.35	111283.65
30.06.16	5175.00	5564.18	389.18	3327.17	111672.83
31.12.16	5175.00	5583.64	408.64	2918.53	112081.47
30.06.17	5175.00	5604.07	429.07	2489.45	112510.55
Journal Entry
Date	Accounts title and explanation				Debit $	Credit $
01.01.16	Cash Account Dr.				111283.65
	Discount on Bonds payable Dr.				3716.35
	Bonds payable Account					115000.00
30.06.16	Interest expense Account Dr.				5564.18
	Cash Account					5175.00
	Discount on Bonds payable Accouunt					389.18
31.12.16	Interest expense Account Dr.				5583.64
	Cash Account					5175.00
	Discount on Bonds payable Accouunt					408.64
30.06.17	Interest expense Account Dr.				5604.07
	Cash Account					5175.00
	Discount on Bonds payable Accouunt					429.07