Question

The board of directors of Belmont, LLC, authorized the issuance of $600,000 face value, 20-year, 6 percent bonds, dated March 1, 2016, and maturing on March 1, 2036. Interest is payable semiannually on September 1 and March 1.

DATE		TRANSACTIONS FOR 2016
Jun. 1		Issued bonds with a face value of $500,000 at 97.63 plus accrued interest from March 1. (When bonds are issued between interest payment dates, the accrued interest is paid to the corporation by the purchaser. Credit Bond Interest Expense.)
Sept. 1		Paid the semiannual bond interest and amortized the discount for three months. (Make two entries. Use the straight-line method to compute the amortization.)
Dec. 31		Recorded an adjusting entry to accrue the interest and to amortize the discount. (Make one entry.)
31		Closed the Bond Interest Expense account to the Income Summary account.

DATE		TRANSACTIONS FOR 2017
Jan. 1		Reversed the adjusting entry made on December 31, 2016.
Mar. 1		Paid the semiannual bond interest and amortized the discount on the outstanding bonds.

1. Record the amortization of the discount for the bond issued on June 1.

2. Prepare the Long-Term Liabilities section of the corporation's balance sheet on December 31, 2016

Analyze:
What is the balance of the Discount on Bonds Payable account on December 31, 2016?.

Answer 1

Journal entries
date	Accounts title and explanations		Debit$	Credit$
01-Jun	Cash account			594780
	Discount on bonds payable (600,000*2.37%)	14220
	Bonds payable				6,00,000
	Bond Interest expense (600,000*6%*3/12)	9000
	(for bonds issued)
Sep-01	Bond interest expense (600,000*6%*6/12)	18000
	Cash account				18000
	(for interest paid)
Sep-01	Bond interest expense (14220*3/240)	177.75
	Discount on bonds payable			177.75
	(for discount amortized)
31-Dec	Bonds interest expense		12237
	Discount on bonds payable (14220*4/240)	237
	Bond interest payable (600,000*6%*4/12)	12000
	(for interest accrued)
Dec-20	Income Summary			21414.75
	Bond interest expense (18000+177.75+12237-9000)	21414.75
	(for interest expense closed)
2017
01-Jan	Bond interest payable		12000
	Bond interest expense			12000
	(for reversing the adjusting entry)
01-Mar	Bond Interest expense (600,000*6%*6/12)	18000
	Cash account				18000
	(for payment of interest)
01-Mar	Bond interest expense (14220*2/240)	118.5
	Discount on bonds payable			118.5
	(for discount amortizd)
Liabilities Section on 31.12.16
Current liabilities
Bond interest payable				12000
Long term liabilities:
Bonds payable			6,00,000
Less: Discount on bonds payable	13805.25		5,86,195
	(14220-177.75-237)
Total Liabilities					5,98,195
Balance of Discount on bonds payable on 31.12.16		13805.25
			(14220-177.75-237)