On January 1, 2013, JWS Corporation issued $693,000 of 7% bonds, due in 10 years

Question

On January 1, 2013, JWS Corporation issued $693,000 of 7% bonds, due in 10 years. The bonds were issued for $645,911, and pay interest each July 1 and January 1. JWS 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 8%. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round answers to zero decimal places, e.g. 2,510.)

Explanation / Answer

Jan 1
Outstanding Balance 645911

July 1
Cash Interest Payment 693,000 x 7% x 6/12 = 24,255
Interest Expense 645,911 x 8% x 6/12 =25,836.44
Discount Amortized =25,836.44 - 24,255=1,581.44

Outstanding Balance 645,911 + 1,581.44 = 647,492.4

Dec 31
Cash Interest Payable 24,255
Interest Expense 647,492.44 x 8% x 6/12 = 25,899.696
Discount Amortized 1,644.693
Outstanding Balance 647,499.24 + 1,644.693 = 649137.096

Now you have the information you need to make the entries:

(a)
Debit Cash 645,911
Debit Discount on Bonds Payable 47,089
Credit Bonds Payable 693,000

(b)
Debit Interest Expense 25,836
Credit Discount on Bonds Payable 1,581
Credit Cash 24,255

(c)
Debit Interest Expense 225,899
Credit Discount on Bonds Payable 1,644
Credit Interest Payable 24,255

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