Question

I need to make a journal entry for the following problems. I think I got #1 right but I need help with how to solve #2 if possible, thank you.

1. On Jan 1 a corporation issued $325,000, 5.5%, 9 year bonds when the market rate was 6%. Interest is to be paid annually on each Jan 1, beginning 1 year from the date of issue.

THIS IS WHAT I GOT FOR THIS ONE:

Jan 1. Cash Debit   $313,947

   Discount on bonds payable 11,053

Bonds payable Credit $325,000

2. The first cash interest payment on the 5.5% bonds is due January 1 of next year. The annual interest on the bonds for 2021 has not yet been recorded. Use the effective interest method.

Answer 1

Assuming #2 is happening on December 31^st,2020 while the first took place on Jan. 1^st, 2020. As interest is accrued and not paid yet, it has to be recorded as interest payable.

Interest = 0.055 * 325000 = 17,875

Date	Description	Debit	Credit
Jan. 1st, 2020	Cash	$ 3,13,947.00
	Discount on bonds payable	$    11,053.00
	Bonds Payable		$ 3,25,000.00
Dec. 31st, 2020	Bond Interest Expense	$    17,875.00
	Interest Payable		$    17,875.00
	To be accrued as interest for the year 2020