On March 31, Marshall Co, issued bonds payable with a coupon rate of 8% maturing

Question

On March 31, Marshall Co, issued bonds payable with a coupon rate of 8% maturing in 5 years, with a face value of 12,000,000.00. These bonds were issued at a discount with a price of 95% of face and pay interest on March 31 and September 30 2010. The company amoratizes bond discounts using the straight line method.

1. Show the journal entries to record the issuance of the bonds on 3/31/2010.

2. Show the journal entries to record the semi annual interest payments and discount amortization on 9/30/2010.

3. Show the journal entries to record the interest accrual and discount amortization on 12.31.2010.

Explanation / Answer

1. Cash (Dr.) 11,400,000 Discount on bonds payable (Dr.) 600,000 Bonds payable (Cr.) 12,000,000 2. Interest expense (Dr.) 480000 Cash (Cr.) 480000 Interest expense (Dr.) 60000 Discount on bonds payable (Cr.) 60000 3. Interest expense (Dr.) 240000 Interest payable (Cr.) 240000 Interest expense (Dr.) 30000 Discount on bonds payable (Cr.) 30000

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