On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, wi
ID: 2491208 • Letter: O
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:
a. Issuance of the bonds.
If an amount box does not require an entry, leave it blank, or enter zero "0".
b. First semiannual interest payment.
c. Amortization of bond discount for the year, using the straight-line method of amortization.
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a. Issuance of the bonds.
If an amount box does not require an entry, leave it blank, or enter zero "0".
Explanation / Answer
1. Issuance of bond entry
Cash A/c Dr 1,225,000
Premium on Bonds payable Dr 275,000 ( since bond is sold less than the face value)
Bond payable A/c Cr 1,500,00
2. First semi annual interest payment
Interest Exp Dr 60,000
Cash A/c Cr 60,000.
3. Amortisation of Bond discout for the year.
Total bond discount = 1,500,000-1,225,000 = $ 275,000
Amortisation of bond discount over the period of 10 years = 275,000/10 = $ 27, 500 , i.e, 13,750 for half year.
Entry
Interest Expense Dr 60,000.
Discount on bonds payable Cr 13,750
Cash A/c Cr 46,250
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