Question

8/31/y1, $3,000,000 face value bonds are issued for $2,600,000 plus accrued interest. These bonds pay interest on October 31 and April 30. These bonds have a coupon rate of 6%, and are dated April 30, y1. The bonds are 20-year bonds, and as such mature on April 30, Y21. Please record the following, using the straight-line approach. This company has a December 31 year end. 8/31/y1, issuance of the bonds (include accrued interest). 10/31/y1, interest payment. 12/31/y1, accrual of interest. 4/30/y2, interest payment.

Answer 1

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Date	Account	Debit	Credit
31 Aug	Cash ($2,600,000+$60,000)	$2,660,000
	Discount on Bond Payable	$   400,000
	Bond Payable		$3,000,000
	Interest Payable ($3,000,000*6%*4/12)		$     60,000
	(to record bond issuance)
Oct 31	Interest Expense (Plug in)	$     51,053
	Interest Payable (From Aug 31)	$     60,000
	Discounts on Bond Payable ($400,000/38months*2months)		$     21,053
	Cash ($3,000,000*6%*6//12)		$     90,000
	(interest recorded)
Dec 31	Interest Expense (Plug in)	$     51,053
	Discounts on Bond Payable ($400,000/38months*2months)		$     21,053
	Interest Payable (3m*6%*2/12)		$     30,000
	(interest recorded)
Apr 30	Interest Expense (Plug in)	$   102,105
	Interest Payable (From Dec 31)	$     30,000
	Discounts on Bond Payable ($400,000/38months*4months)		$     42,105
	Cash ($3,000,000*6%*6//12)		$     90,000
	(interest recorded)