Question

Stephanie Ram Corporation have a $780,000 "bond issue" dated February 1, 2016 due in 10 years with an annual interest rate of 6%. Interest is payable February 1 and August 1. On April 1, 2016, the bond was sold for $715,100 plus accrued interest.

Using the straight-line method, prepare the general journal entries for each of the following:

a)		The issuance of the bond on April 1, 2016.
b)		Payment of the semi-annual interest and the amortization of the discount on August 1, 2016.
c)		Accrual of the interest and the amortization of the discount on December 31, 2016.
d)		Payment of the semi-annual interest and the amortization of the discount on February 1, 2017.

Answer 1

No.	date	accounts	debit	credit
a.	April 1, 2016	cash	$715,100
		Discount on bonds payable	$72700
		bonds payable		$780,000
		interest payable (780000*6%*2/12)		7800
b.	August 1, 2016	interest payable	7800
		Interest expense (780000*6%*4/12)	15600
		Discount on bonds payable (72700/10)*6/12		3635
		Cash		19765
c.	December 31, 2016	Interest expense (780000*6%*5/12)	19500
		Discount on bonds payable (72700/10)*5/12		3029
		Interest payable		16471
d.	August 1, 2016	interest payable	16471
		Interest expense (780000*6%*1/12)	3900
		Discount on bonds payable (72700/10)*1/12		606
		Cash		19765