Question

On 1/1/19 Impish Corp. issued a 10-year bond with a par value of $100,000, an annual stated rate of 10%, and a market rate (yield) of 12%. Interest payments are made annually each 12/31. The bonds were issued for a price of $88,702.

Required (1):  Record the journal entries for the first two interest payments (on 12/31/2019 and 12/31/2020) assuming the company uses the effective-rate method (round to the nearest dollar).

Remember to include financial statement effects in parentheses. All journal entry lines may not be necessary.

Date	Account	Debit	Credit
12/31/19
12/31/20

Required (2):  Record the second interest payment (on December 31, 2020) assuming instead that the company uses the straight-line method (round to the nearest dollar).

Remember to include financial statement effects in parentheses. All journal entry lines may not be necessary.

Date	Account	Debit	Credit
12/31/20

Answer 1

Date	Account	Debit	Credit
12/31/19	Interest Expense	$10,644		($88,702 x 12%)
	Discount on bonds payable		$644
	Cash		$10,000	($100,000 x 10%)
12/31/20	Interest Expense	$10,722		[($88,702 + $644) x 12%]
	Discount on bonds payable		$722
	Cash		$10,000
Date	Account	Debit	Credit
12/31/19	Interest Expense	$11,130		($88,702 x 12%)
	Discount on bonds payable		$1,130	($100,000 - $88,702)/10 years
	Cash		$10,000	($100,000 x 10%)