On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, wi

Question

On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000.  Present entries to record the following transactions for the current fiscal year. Be sure to clearly indicate what accounts/amounts are debited and what accounts/amounts are credited.

(a) Issuance of the bonds. (b) Semiannual interest payment (record as separate entry from discount amortization). (c) Semiannual amortization of bond discount (using the straight-line method of amortization).

Explanation / Answer

a)
Cash. 1,225,000

Discount on Bonds Payable. 275,000

Bonds Payable. 1,500,000

(b)

Interest Expense. 60,000

Interest Payable. 60,000

c)

Interest Expense. 27,500

Discount on Bonds Payable. 27,500

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