Question

Brief Exercise 14-3

The Monty Company issued $240,000 of 13% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 96.

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Monty Company records straight-line amortization semiannually. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

Answer 1

Date	Account Title And Explanation	Debit	Credit
Jan 1,2017	Cash A/c	$23,040,000
	Discount on bonds payable A/c	$960,000
	Bonds payable A/c		$24,000,000
	(Being bond issued)
July 1,2017	Interest expense A/c	$1,656,000
	Discount on bonds payable A/c		$96,000
	Cash A/c		$1,560,000
	(Being interest paid )
Dec 31,2017	Interest expense A/c	$1,656,000
	Discount on bonds payable A/c		$96,000
	Interest payable A/c		$1,560,000
	(being interest accrued)

Working notes

Particulars	Amount
Bond issue price ( 240000*96)	$23,040,000
Face value (240000*100)	$24,000,000
Discount on bond	$960,000
Number of Interest payments (5 years x 2) (Jan 1,2017- Jan 1,2022)	10 Times
Discount to be amortized per payment ($960000/10)	$96,000
Interest on bond (Annual) ($24000000*13/100)	$3,120,000
Interest on bond (semi-annually)	$1,560,000