Question

At the end of 2017, Majors Furniture Company failed to accrue $68,500 of interest expense that accrued during the last five months of 2017 on bonds payable. The bonds mature in 2029. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2018, when the semiannual interest was paid:

Interest expense	82,200
Discount on bonds payable		2,700
Cash		79,500

   
Required:
1-a. Prepare any journal entry necessary to correct the error as well as the adjusting entry for 2018. (Ignore income taxes.)
1-b. Prepare journal entry that should have been recorded, if done correctly to start.

Answer 1

1-a.	Description	Debit	Credit
	Interest expense	68,500
	Discount on bonds payable		2,250	(2,700 x 5/6)
	Interest Payable		66,250	(79,500 x 5/6)
1-b.	Description	Debit	Credit
	Interest Payable	66,250
	Interest expense	13,700
	Discount on bonds payable		450	(2,700 x 1/6)
	Cash		79,500