Question

On January 1, 2021, Universe of Fun issues $700,000, 7% bonds that mature in 10 years. The market interest rate for bonds of similar risk and maturity is 8%, and the bonds issue for $652,434. Interest is paid semiannually on June 30 and December 31.

Record the issuance of the bonds on January 1, the interest payments on June 30, and December 31, 2021.

1) Record the bond issue.

2) Record the first semiannual interest payment.

3) Record the second semiannual interest payment.

Answer 1

Answer-

First three rows of amortization table :
Date	Cash Paid	Interest expense	Increase in carrying value	Carrying value
	A	B	C=B-A
1/1/21				$         652,434.00
6/30/21	$                                                                                                        24,500.00	$                 26,097.36	$ 1,597.36	$         654,031.36
	(700,000*7%/2)	(652,434*8%/2)
12/31/21	$                                                                                                        24,500.00	$ 26,161.25	$ 1661.25	$         655,692.61
	(700000*7%/2)	(654,031.36*8%/2)
Journal entries:
Date	Accounts / Explanations	Debit	Credit
1/1/21	Cash	$               652,434.00
	Discount on bonds payable (700000-652,434)	$ 47,566.00
	Bonds Payable		$   700,000.00
	(Being bonds issued at discount)
6/30/21	Interest Expense	$                 26,097.36
	Discount on bonds payable		$ 1,597.36
	Cash		$     24,500.00
	(Being interest expense recorded and discount amortized)
12/31/21	Interest Expense	$                 26,161.25
	Discount on bonds payable		$ 1,661.25
	Cash		$     24,500.00
	(Being interest expense recorded and discount amortized)