Question

On March 1, 2014, Munsey Corporation issued $1,200,000 of 6 percent, fiveyear bonds. The semiannual interest payment dates are February 28 and August 31. Because the market rate for similar investments was 7 percent, the bonds had to be issued at a discount. The discount on the issuance of the bonds was $49,900. The company’s fiscal year ends February 28. Prepare the journal entries to record the bond issue on March 1, 2014, the payment of interest, and the amortization of the discount on August 31, 2014 and on February 28, 2015. Use the effective interest method. (Round to the nearest dollar.)

Answer 1

		Debit	Credit
March 1, 2014	Cash	1150100
	Discount on Bonds payable	49900
	Bonds payable		1200000
August 31, 2014	Interest expense	40254		=1150100*7%/2
	Discount on Bonds payable		4254
	Cash		36000	=1200000*6%/2
February 28, 2015	Interest expense	40402		=(1150100+4254)*7%/2
	Discount on Bonds payable		4402
	Cash		36000