Question

The board of directors of Calmont, LLC, authorized the issuance of $600,000 face value, 20-year, 5 percent bonds, dated March 1, 2019, and maturing on March 1, 2039. Interest is payable semiannually on September 1 and March 1.

DATE		TRANSACTIONS FOR 2019
Jun.	1	Issued bonds with a face value of $450,000 at 97.63 plus accrued interest from March 1. (When bonds are issued between interest payment dates, the accrued interest is paid to the corporation by the purchaser. Credit Bond Interest Expense.)
Sept.	1	Paid the semiannual bond interest and amortized the discount for three months. (Make two entries. Use the straight-line method to compute the amortization.)
Dec.	31	Recorded an adjusting entry to accrue the interest and to amortize the discount. (Make one entry.)
	31	Closed the Bond Interest Expense account to the Income Summary account.

DATE	TRANSACTIONS FOR 2020
Jan. 1	Reversed the adjusting entry made on December 31, 2019.
Mar. 1	Paid the semiannual bond interest and amortized the discount on the outstanding bonds.

Required:

1. Record the preceding transactions in general journal form.
2. Prepare the Long-Term Liabilities section of the corporation's balance sheet on December 31, 2019.

Analyze:
What is the balance of the Discount on Bonds Payable account on December 31, 2019?

Answer 1

1.

Date	General Journal	Debit	Credit
2019
June 1	Cash [(450,000*97.63%)+(450000*5%*3/12)	444960
	Discount on bonds payable [450000-(450000*97.63%)]	10,665
	Bonds Payable [at face value]		450,000
	Bond Interest expense [450000*5%*3/12]		5625
Sept 1	Bond interest expense	11383
	Discount on bonds payable [10665 *3 months/240 months]		133
	Cash [450000*5%*6/12]		11250
Dec 31	Bond interest expense	7678
	Discount on bonds payable [10665 *4 months/240 months]		178
	Bond interest payable [450000*5%*4/12]		7500
Dec 31	Income summary [11383+7878-5625]	13436
	Bond interest expense		13436
2020
Jan 1	Bond interest payable [450000*5%*4/12]	7500
	Discount on bonds payable [10665 *4 months/240 months]	178
	Bond interest expense		7678
Mar 1	Bond interest expense	11517
	Discount on bonds payable [10665*6/240]		267
	Cash [450000*5%*6/12]		11250

2.

Long term liabilities
Bonds Payable	450,000
Less: Discount on bonds payable unamortized	10354
	439,646

3. Discount on bonds payable = 10354 [ 10665 - 178- 133]