Question

Paulson Company issues 8%, four-year bonds, on January 1 of this year, with a par value of $108,000 and semiannual interest payments. Semiannual Period-End Unamortized Discount Carrying Value (0) January 1, issuance $ 6,893 $ 101,107 (1) June 30, first payment 6,031 101,969 (2) December 31, second payment 5,169 102,831 Use the above straight-line bond amortization table and prepare journal entries for the following. (a) The issuance of bonds on January 1. (b) The first interest payment on June 30. (c) The second interest payment on December 31

Answer 1

Journal entries

Date	Account title and explanation	Debit	Credit
Jan 1(a)	Cash	$101,107
	Discount on issue of bonds	$6,893
	Bonds payable		$108,000
	(To record issue of bonds)
June 30(b)	Interest expense	$5,182
	Cash ($108,000×8%×6/12)		$4,320
	Discount on issue of bonds		$862
	(To record interest payment)
Dec 31(c)	Interest expense	$5,182
	Cash($108,000×8%×6/12)		$4,320
	Discount on issue of common		$862
	( To record interest payment)

Discount=$6,893

Duration= 4 years

Annually=$6,893/4 =$1,723

For semi annual =$1,723/2 =$862

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