Question

Assume that on January 1 of the current year, $200,000 of 5-year, 10% bonds, with interest payable semiannually, were sold for $192,462. Give the account to be debited (1) and the amount and the account to be credited (2) and the amount to journalize the amortization of the discount using the straight-line method of amortization when the first interest payment is made on June 30. Round to the nearest whole dollar.                                     

      JOURNAL

date	description	p.ref.	debit	CREDIT
June 30	(1)		?
	(2)			?

show me the steps to figure this problem out.

Answer 1

The journal entry to record the amortization of the discount using the straight-line method

Description	Debit ($)	Credit ($)
Interest Expenses	10,754
Discount on Bond payable		754
Cash		10,000
[The journal entry to record the amortization of the discount using the straight-line method]

Discount on Bond payable = $754 [($200,000 - $192,462) / 10 Periods]

Cash = $10,000 [$200,000 x 10.00% x ½]

Interest Expenses = $10,754 [$754 + $10,000]