Question

On January 1, 2017, Vaughn Corporation issued $680,000 of 9% bonds, due in 8 years. The bonds were issued for $643,151, and pay interest each July 1 and January 1. Vaughn uses the effective-interest method.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Journal entries

Date	account and explanation	debit	credit
jan 1	cash	643151
	Discount on bonds payable	36849
	Bonds payable		680000
	(To record bond issue)
July 1	Interest expense (643151*10%*6/12)	32158
	Discount on bonds payable		1558
	Cash (680000*9%*6/12)		30600
	(To record interest)
Dec 31	Interest expense (643151+1558)*5%	32235
	Discount on bonds payable		1635
	Interest payable		30600
	(To record interest)