Question

On December​ 31,2018​,when the market interest rate is 16​%, Benson Realty

issues $550,000 of 14.25​%,10​-year bonds payable. The bonds pay interest semiannually. The present value of the bonds at issuance is $502,993.

Requirements

1.	Prepare an amortization table using the effective interest amortization method for the first two semiannual interest periods.​ (Round to the nearest​ dollar.)
2.	Using the amortization table prepared in Requirement​ 1, journalize issuance of the bonds and the first two interest payments.

Answer 1

Solution

Requirement 1

Year end	Cash paid	Interest expense	Change in carrying value	Carrying value
Dec 31 2018				$                 502,993
June 30, 2019	$              39,188	$               40,239	$              1,052	$                 504,045
Dec 31 2019	$              39,188	$               40,324	$              1,136	$                 505,181

Working

Date	General Journal	Debit	Credit
Dec 31 2018	Cash	$     502,993.00
	Discount on bonds payable	$        47,007.00
	Bonds payable		$         550,000.00
	(To record issuance of bonds)
Jun-30-2019	Bond interest expense	$        40,239.00
	Discount on bonds payable		$              1,051.00
	Cash		$            39,188.00
	(To record bond interest)
Dec-31-2019	Bond interest expense	$        40,324.00
	Discount on bonds payable		$              1,136.00
	Cash		$            39,188.00
	(To record bond interest)