Question

Your company issued 1,000, 3.5% (face value of each bond is $1,000) at 97.7544 on July...

Your company issued 1,000, 3.5% (face value of each bond is $1,000) at 97.7544 on July 1st, 2019. The bonds are due on July 1st, 2024, with interest payable each January 1 and July 1. The market rate at the time of the bond issuance was 4.0 percent. Use the effective interest method to calculate both the interest expense and the amortization of the bond discount when each interest payment is made.

Working on the balance sheet for a project for 2019. What will the journal entries for this be?

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Answer #1
The following journal entries will be prepared in 2019 to record the issuance of the bonds and interest expense.
Date Genral Journal Debit Credit
Jul. 1 Cash (1000 x 1000 x 97.7544/100) 977544
Discount on Bonds Payable (1000000-977544) 22456
        Bonds Payable (1000 x 1000) 1000000
(To record issuance of bonds on a discount.)
Dec. 31 Interest Expense (977544 x 4% x 1/2) 19551
      Discount on Bonds Payable (19551 - 17500) 2051
      Interest Payable (1000000 x 3.5% x 1/2) 17500
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