Question

On 1 July 20X0, Sandalwood Company issued $10 million, 5 year, 5% bonds at 95, with interest payable on 31 December and 30 June. The company policy is to use the straight-line method issued to amortise the bond discount or bond premium.

Required:

Part A: Prepare the journal entry to record the sale of these bonds at the issue date - [3 marks]

Part B: Prepare the journal entry to record the interest expense and bond amortisation on 31 December 20X0. Assume no previous accrual of interest - [3 marks]

Answer 1

Journal entries are as follows:

Date	Account and Explanation	Debit ($)	Credit ($)
1 July 20X0	Cash ($10,000,000 * 95%)	9,500,000
	Discount on Bond Payable	500,000
	Bond Payable		10,000,000
	( Recorded the discount on Bond Payable )
31 Dec. 20X0	Interest Expenses ($10,000,000 * 5% * 6/12)	275,000
	Discount on Bond Payable ($250,000 /10)		25,000
	Cash		250,000
	(Recorded the interest expenses with Discount on Bond Payable )