Question

On the first day of the fiscal year, a company issues a $1,200,000, 6%, 8-year bond that pays semiannual interest of $36,000 ($1,200,000 × 6% × ½), receiving cash of $1,127,435.

Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

Answer 1

Discont on Bonds= 1,200,000- 1,127,435 = 72,565

8*2 = 16 semiannual interest payments will be in 8 years.

Discount to be written off with each interest payment = 72,565/16 = 4535.3125 or 4535.

Journal entry at the time of Issue will be:

Date	Accounts	Debit	Credit
	Cash	1,127,435
	Discount on Bonds payable	72,565
	Bonds Payable		1,200,000

Required Journal entry at the time of Interest payment and amortization of Discount will be:

Date	Accounts	Debit	Credit
	Bond Interest Expense	40,535
	Discount on Bonds payable		4,535
	Cash		36,000

This way total interest expense will be shown as 40,535.

Hope it helps.