Question

Since the club opened, a major concern has been the pool facilities. Although the existing pool is adequate, Debby, Jamie, and Ella all desire to make LifePath a cutting-edge facility. Until the end of 2017, financing concerns prevented this improvement. However, because there has been steady growth in clientele, revenue, and income since the third quarter of 2017, the owners have explored possible financing options. They are hesitant to issue stock and change the ownership mix because they have been able to work together as a team with great effectiveness. They have formulated a plan to issue secured term bonds to raise the needed $600,000 for the pool facilities. By the end of December 2017, everything was in place for the bond issue to go ahead. On January 1, 2018, the bonds were issued for $548,000. The bonds pay annual interest of 6% on January 1 of each year. The bonds mature in 10 years, and amortization is computed using the straight-line method. Instructions (d) Record (1) the issuance of the secured bonds, (2) the adjusting entry required at December 31, 2018, (3) the interest payment made on January 1, 2019, and (4) the interest accrued on December 31, 2019.

Answer 1

Journal entry:

Date	accounts & explanation	debit	credit
Jan 1,2018	Cash	548000
	Discount on bonds payable	52000
	Bonds payable		600000
	(To record bond issue)
Dec 31,2018	Interest expense	41200
	Discount on bonds payable (52000/10)		5200
	Interest payable (600000*6%)		36000
	(To record accured interest)
Jan 1,2019	Interest payable	36000
	Cash		36000
	(To record interest paid)
Dec 31,2019	Interest expense	41200
	Discount on bonds payable		5200
	Interest payable		36000
	(To record accured interest)