Question

On Jul 1, BGA issued $1,500,000 of Bonds Payable at 95, with semi-annual, 6% interest due...

On Jul 1, BGA issued $1,500,000 of Bonds Payable at 95, with semi-annual, 6% interest due next on Jan 1. Bonds have two year maturity and mature on Jul 1, 2019. The Bond Issuance on Jul 1, 2017, had a discount that needs to be amortized over its two year term as additional interest expense. Use the straight-line method to amortize the Bond Discount (thus decreasing the Discount on Bonds amount booked on Jul 1 when the bonds were issued). What two accounts should be adjusted in the journal entry and for how much?

Homework Answers

Answer #1
Par value of bonds 1500000
issue price (1500000*95%) 1425000
Discount on bonds payable 75000
Divide: Number of periods 4
Discount amortized each period 17500
Semi annual cassh interest = 1500000*6%*6/12 = 45000
Total Interest expenses = 17500+45000 = 62500
Adjusting entry on Dec31 2017
Date Accounts title and explanations Debit$ Credit $
Dec31 2017 Interest expenses 62500
     Interest payable 45000
     Discount on bonds payable 17500
(for interest accrued including the discount amortized)
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