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On the first day of the fiscal year, a company issues a $4,100,000, 7%, 9-year bond...

On the first day of the fiscal year, a company issues a $4,100,000, 7%, 9-year bond that pays semiannual interest of $143,500 ($4,100,000 × 7% × ½), receiving cash of $3,381,091. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

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Answer #1

Journal Entry:

Date

Account Name

Debit

Credit

March 31 of the fiscal year

Interest Expense

$ 1,83,440

(Fiscal year=October 1 to September 30 )

     Discount on bonds payable

$    39,940

     Cash

$ 1,43,500

September 30,of fiscal year

Interest Expense

$ 1,83,440

     Discount on bonds payable

$    39,940

     Cash

$ 1,43,500

Working Note:

Bonds are issued at a discount= Par value-Issue Price i.e $ 4100,000-$ 3381091= $ 718909

Amortisation of discount on straight line basis= $718909/18= $39939.39=$ 39940

Semi annual interest=$143500

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