Question

On January 1, 2020, Ivanhoe Corporation issued $560,000 of 7% bonds, due in 10 years. The bonds were issued for $521,948, and pay interest each July 1 and January 1. Ivanhoe uses the effective-interest method.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%.

(a)	Jan. 1, 2020July 1, 2020Dec. 31, 2020
(b)	Jan. 1, 2020July 1, 2020Dec. 31, 2020
(c)	Jan. 1, 2020July 1, 2020Dec. 31, 2020

Answer 1

	Date	Account Titles	Debit	Credit
a	Jan. 1, 2020	Cash	521948
		Discount on Bonds payable	38052
		Bonds payable		560000
b	July 1, 2020	Interest expense	20878		=521948*8%*6/12
		Discount on Bonds payable		1278
		Cash		19600	=560000*7%*6/12
c	Dec. 31, 2020	Interest expense	20929		=(521948+1278)*8%*6/12
		Discount on Bonds payable		1329
		Interest payable		19600	=560000*7%*6/12