Question

1. issued 11% bonds, dated January 1, with a face amount of $800,000 on January 1, 2009. The bonds sold for $739,815 and mature in 2028 (20 years). For bonds of similar risk and maturity, the market yield was 12%. Interest is paid semiannually on June 30 and December 31. The company uses the effective interest method of amortization and has a calendar year end.   Instructions: Prepare the journal entries that Federal Semiconductors would make on January 1, June 30, December 31, 2020 and at maturity, related to the bond issue.

Answer 1

Solution-

Date	General Journal	Dr	Cr
Jan 1 2016	Cash	$739,815.00
	Discount on bonds Payable	$60,185.00
	Bonds Payable		$800,000.00
	(being bond issued at discount)
30-Jun	Interest expenses (739815*6%)	$44,389.00
	Cash (800000*5.5%)		$44,000.00
	Discount on bonds Payable (discount amortized)		$389.00
	(being Semi annual Interest paid)
31-Dec	Interest expenses (739,815+389)*6%	$44,412.00
	Cash		$44,000.00
	Discount on bonds Payable (differnce between int exp and int paid)		$412.00
	(being semiannual interest paid)