Question

Problem 2: On June 30, Jamison Company issued $5,500,000 of 10-year, 4% bonds, for $4,450,000.  Present entries to record the following transactions. ​ (a) Issuance of bonds. (b) Payment of first semiannual interest on December 31 and the amortization of the discount or premium.
Journal				Page XX
Date		Item	Debit	Credit

Answer 1

(a)-Journal Entry to record the Bond Issuance.

Date	Item	Debit ($)	Credit ($)
June 30	Cash A/c	4,450,000
	Discount on Bond Payable A/c	1,050,000
	To Bond Payable A/c		5,500,000
	[Journal Entry to record the Issuance of Bond]

(b)-Journal Entry to record the Payment of first semiannual interest on December 31 and the amortization of the discount

Date	Accounts Tittles and explanations	Debit ($)	Credit ($)
December 31	Interest Expenses A/c	162,500
	To Discount on Bond Payable A/c		52,500
	To Cash A/c		110,000
	[Journal Entry to record the Payment of first semiannual interest on December 31 and the amortization of the discount]

Amortization of Discount on Bond Payable during each semiannual period using straight line method of amortization

= Discount on Bond Payable / Number of Periods

= $10,50,000 / [10 years x 2)

= $10,50,000 / 20 periods

= $52,500 per each semi-annual period

Cash Payment = Face value of the bond x Coupon rate x ½

= $55,00,000 x 4% x ½

= $110,000

Therefore, the amount to debited to Interest Expense on December 31

Amount to be debited to Interest Expense on December 31= Cash payment + Discount amortization

= $110,000 + $52,500

= $162,500