Verlin Company issues $2 million, 10-year, 7% bonds at 99, with interest payable

Question

Verlin Company issues $2 million, 10-year, 7% bonds at 99, with interest payable on December 31. The straight-line method is used to amortize bond discount. Prepare the journal entry to record the sale of these bonds on January 1, 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually). Prepare the journal entry to record interest expense and bond discount amortization on December 31, 2014, assuming no previous accrual of interest. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Per Valu of Bond $ 2,000,000.00 issued at 99 $ 1,980,000.00 Discount on bond $       20,000.00 Annual amortization of bond $          2,000.00 Annual Interest Expenses (2,000,000 x 7%) $     140,000.00 Question a. Date Account Title Debit Credit 01-Jan-14 Cash $ 1,980,000.00 Discount on bond $       20,000.00 10 year 7% Bond $ 2,000,000.00 Question b. Date Account Title Debit Credit 31-Dec-14 Interest expenses $     140,000.00 Cash $     140,000.00 (Interest for the year 2014) Interest Expenses 20000 Discount on bond 20000 (Amortization of Bond discount )

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