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On January 1, Monty Corp. issues $2760000, 5-year, 12% bonds at 94 with interest payable on...

On January 1, Monty Corp. issues $2760000, 5-year, 12% bonds at 94 with interest payable on January 1. The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will include a

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Answer #1

Par value of bonds = $2,760,000

Issue price of bonds = 94

Cash received from issue of bonds = Par value of bonds x Issue price

= 2,760,000 x 94%

= $2,594,400

Discount on issue of bonds = Par value of bonds - Cash received from issue of bonds

= 2,760,000-2,594,400

= $165,600

Annual interest payment = Par value of bonds x Interest rate

= 2,760,000 x 12%

= $331,200

Annual amortization of bond discount = Bond discount / Bond life

= 165,600/5

= $33,120

The entry on December 31 to record accrued bond interest and the amortization of bond discount using the straight-line method will be as under:

Date General Journal Debit Credit
December 31 Interest expense $364,320
Discount on bonds payable $33,120
Interest payable $331,200

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