On the first day of its fiscal year, Robbins Company issued $6,400,000 of 5-year

Question

On the first day of its fiscal year, Robbins Company issued $6,400,000 of 5-year, 11% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 14%, resulting in Robbins Company receiving cash of $5,725,735.

a.  Journalize the entries to record the following:

For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

a.  Journalize the entries to record the following:

1. Issuance of the bonds.
2. First semiannual interest payment. (Amortization of discount is to be recorded annually.)
3. Second semiannual interest payment.
4. Amortization of discount at the end of the first year, using the straight-line method. (Round to the nearest dollar.)

For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

Explanation / Answer

1.

Debit: Cash 5,725,735

Debit: Discount on Bonds payable 674,265

Credit: Bonds payable 6,400,000

2.

6,400,000*.11 = 704,000

Debit: Interest expense 704,000

Credit: Cash 704,000

3.

Debit: Interest expense 704,000

Credit: Interest expense 704,000

674,625/5 = 134,853

Debit: Interest expense 134,853

Credit: Discount on bonds payable 134,853

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