Question

On the first day of the fiscal year, a company issues an $423,000, 7%, five-year bond that pays semiannual interest of $14,805 ($423,000 x 7% x 1/2), receiving cash of $397,600. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.

If an amount box does not require an entry, leave it blank.

Answer 1

Journalize the entry to issuance of bond :
Date	Description		Debit	Credit
a)	Cash		397600
	Discount on Bonds payable		25400
	To Bonds payable			423000
Journalize the first interest payment and the amortization of related bond discount using straight line method :
Date	Description		Debit	Credit
a)	Interest expense		17345
	To Discount on Bond payable			2540
	To Cash			14805
Discount on Bonds payable = +423000+-397600			25400
Interest will be paid semi annually over a period of 5 years i.e., 10 payments
amortization will be done over the 10 years under the straight line method.
Amortization amount on discount on bond payable = +25400/10					2540