Question

b. Compute the amount of the bond interest expense for the first year. Round amounts to the nearest dollar.

Annual interest paid	$
Discount amortized
Interest expense for first year	$

Amortize Discount by Interest Method

On the first day of its fiscal year, Ebert Company issued $21,000,000 of 5-year, 11% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 13%, resulting in Ebert receiving cash of $19,490,429. The company uses the interest method.

a. Journalize the entries to record the following:

1. Sale of the bonds. Round amounts to the nearest dollar. If an amount box does not require an entry, leave it blank.

2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

Answer 1

Journal entry :

Date	accounts & explanation	debit	credit
	Cash	19490429
	Discount on bonds payable	1509571
	Bonds payable		21000000
	(To record bonds issue)
	Interest expense (19490429*13%*6/12)	1266878
	Discount on bonds payable		111878
	Cash (21000000*11%*6/12)		1155000
	(To record first interest payment)
	Interest expense (19490429+111878)*13%*6/12	1274150
	Discount on bonds payable		119150
	Cash		1155000
	(To record interest payment)

b) Calculate bond interest expense :

Amount paid (21000000*11%)	2310000
Discount amortized (111878+119150)	231028
Interest expense	2541028