Question

Stephanie Ram Corporation have a $880,000 "bond issue" dated February 1, 2016 due in 10 years with an annual interest rate of 6%. Interest is payable February 1 and August 1. On April 1, 2016, the bond was sold for $838,700 plus accrued interest.

Using the straight-line method, prepare the general journal entries for each of the following and show your work in detail:

a)The issuance of the bond on April 1, 2016.

b)Payment of the semi-annual interest and the amortization of the discount on August 1, 2016.

c)Accrual of the interest and the amortization of the discount on December 31, 2016.

d)Payment of the semi-annual interest and the amortization of the discount on February 1, 2017.

Answer 1

Date	Accounts	Debit	Credit
April 1, 2016	Cash (838700+8800)	$847,500
	Discount on Bonds payable (880000-838700)	$41,300
	Bonds payable		$880,000
	Interest payable (880000*6%*2/12)		$8,800
August 1, 2016	Interest expense	19665
	Interest payable	8800
	Discount on Bonds payable (41300/20)		2065
	Cash (880000*6%*6/12)		26400
December 31, 2016	Interest expense	23721
	Discount on Bonds payable (41300/20)*5/6)		1721
	Interest payable  (880000*6%*5/12)		22000
February 1, 2017	Interest expense	4744
	Interest payable	22000
	Discount on Bonds payable (41300/20)*1/6)		344
	Cash (880000*6%*6/12)		26400