Question

On the first day of the fiscal year, a company issues an $310,000, 10%, five-year bond that pays semiannual interest of $15,500 ($310,000 x 10% x 1/2), receiving cash of $291,400. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

Answer 1

Transaction	Description	Debit	Credit
31-Dec-19	Bond interest expense	$         17,360
	Discount on bonds payable		$   1860
	Cash		$   15,500
	(Interest on bond paid and Discount amortized)

Working

Bond issue price	$      2,91,400.00
Face value	$      3,10,000.00
Discount on bonds payable	$         18,600.00
Number of Interest payments (5 years x 2)	10
Premium to be amortized per year	$            1,860.00
Interest on bond	$         15,500.00