On the first day of the fiscal year, a company issues an $915,000, 9%, five-year bond that pays semiannual interest of $41,175 ($915,000 x 9% x 1/2), receiving cash of $860,100. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method. If an amount box does not require an entry, leave it blank.

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Business

Schneider

11 June, 10:53

On the first day of the fiscal year, a company issues an $915,000, 9%, five-year bond that pays semiannual interest of $41,175 ($915,000 x 9% x 1/2), receiving cash of $860,100. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method. If an amount box does not require an entry, leave it blank.

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Marshall Serrano · Answer 1

Dr interest expense $46665

Cr cash $41,175

Cr discount on bonds payable $5,490

Explanation:

The discount on the bond issuance = face value-cash proceeds

face value is $915,000

cash proceeds is $860,100

discount on bond issuance=$915,000-$860,100=$54900

The discount would be amortized over 5 years * 2=10 periods

amortization of discount=54900 / 10=$5490

The cash interest would be credited to bank i. e $41,175

The discount on bonds would be credited with $5490

The interest expense would be debited with $46665 ($41,175+$5,490)