Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method On the

Question

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method

On the first day of its fiscal year, Robbins Company issued $1,100,000 of 4-year, 12% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 14%, resulting in Robbins Company receiving cash of $1,034,316.

a. Journalize the entries to record the following:

For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

1.

2.

3.

4.

b. Determine the amount of the bond interest expense for the first year.

Explanation / Answer

A

B

The interest expense = $66,000 + $66,000 = $132,000

S. NO. PARTICULARS DEBIT CREDIT 1 Bank A/C $ 1,034,316 Discount on Issue of Bond A/C $ 65,684     To 12% Bond A/C $ 1,100,000 [Issue of bonds for cash.] 2 Interest Payable A/C $ 66,000     To Bank A/C $ 66,000 [Payment of interest = 12%*1,100,000*0.5 = $66,000.] 3 Interest Payable A/C $ 66,000     To Bank A/C $ 66,000 [Payment of interest = 12%*1,100,000*0.5 = $66,000.] 4 Profit-Loss A/C $ 16,421 To Discount on Issue of Bond A/C $ 16,421 [Since, it is issued for 4 years and we follow SLM, the amount amortized = 65685/4 = $16,421.]

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