During 2016 and 2017, Agatha Corp. completed the following transactions relating

Question

During 2016 and 2017, Agatha Corp. completed the following transactions relating to its bond issue. The corporation's fiscal year is the calendar year. ear the caendar yeaorelating to ts 2016 Jan. 1 Issued $300,000 of 10-year, 6 percent bonds for $294,000. The annual cash payment for interest is due on December 31 Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. 2017 Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account.

Explanation / Answer

annual interest payment

= $300,000 x 0.06

= $9,000

The total discount of $6,000 is amortized over 10 years.

Since interest is paid once a year, the amount of discount amortized at the time of each interest payment = $6,000 /10

= $600

Journal Entry Work Sheet -2016 Number Description Debit $ Credit $ Jan. 1 Cash 294000 Discount on Bonds Payable 6000 Bonds Payable 300000 (,Jan. 1 Issued $300,000 of 10-year, 6 percent
bonds for $294,000. The annual cash
payment for interest is due on December 31) Dec. 31 Interest Expense 18600 Cash 18000 Discount on Bonds Payable 600 (Dec. 31 Recognized interest expense,
including the straight-line amortization of the
discount, and made the cash payment for interest)

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