On january 1 of the current fiscal year, Block Co. issued a $1,000,000 of 10 yea

Question

On january 1 of the current fiscal year, Block Co. issued a $1,000,000 of 10 year, 10% bonds. The bonds were dated January 1 of the same year. Interest in the bonds is payable on June 30 and December 31 of each year.

Record the following transactions.

1) The bonds were sold for $885,295 on January 1 of the current year. The market rate of interest on that date was 12%.

2) Interest was paid on June 30, and the related amount of bond discount was amortized, based on the straight-line method.

3) Interest was paid on December 31, and the related amount of bond discount was amortized, based on the straight-line method.

4) On December 31, (bonds are one year old), one-half of the bonds were redeemed at 98.

Explanation / Answer

1 Cash 885295 Discount on bonds payable 114705        Bonds payable 1000000 2 Interest expense 55735        Discount on bonds payable 5735 =114705/20         Cash 50000 =1000000*10%/2 3 Interest expense 55735        Discount on bonds payable 5735         Cash 50000 4 Bonds payable 500000 Loss on redemption of bonds 41618         Discount on bonds payable 51618         Cash 490000 Note:Answers might vary +1 due to rounding off

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