Question

Mellilo Corporation issued $5,200,000 of 20-year, 9.5 percent bonds on July 1, 2018, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds in the issue mature on June 30, 2038. Mellilo's fiscal year ends on December 31.

a-c. Record the issuance of the bonds and entries to be passed post the issue. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Record the issuance of bonds.

2. Record the payment of interest and amortize bond discount.

3. Record the final interest payment and amortize bond discount.

4. Record the retirement of bonds at maturity.

Answer 1

1)	Issuance of bonds:
	Date	General Journal		Debit	Credit
	July 1, 2018	Cash		50,96,000
		Discount on Bonds Payable		1,04,000
		Bonds Payable			52,00,000
		(To record issuance of Bond)
	Working:
		face Value of Bond					52,00,000
		Issue Price	5200000	*	98%	=	50,96,000
		Discount on Bonds					1,04,000
2)	First Interest payment and amortization of bond discount:
	Date	General Journal		Debit	Credit
	Dec 31, 2018	Interest Expense		2,49,600
		Discount on Bonds Payable			2,600
		Cash			2,47,000
		(To record interest payment)
	Working:
	Semi annual coupon interest paid in cash			52,00,000	*	9.50%	*	6/12	=	2,47,000
	Semi annual discount amortization			1,04,000	/	40			=	2,600
	Semi annual Interest Expense									2,49,600
3)	Final Interest Payment and bond discount amortization:
	Date	General Journal		Debit	Credit
	June 30, 2038	Interest Expense		2,49,600
		Discount on Bonds Payable			2,600
		Cash			2,47,000
		(To record interest payment)
4)	Retirement of bonds at maturity:
	Date	General Journal		Debit	Credit
	June 30, 2038	Bonds Payable		52,00,000
		Cash			52,00,000
		(To record payment of bond at maturity)