On January 1, a company issued 10%, 10-year bonds payable with a par value of $7
ID: 2377266 • Letter: O
Question
On January 1, a company issued 10%, 10-year bonds payable with a par value of $720,000. The bonds pay interest on July 1 and January 1. The bonds were issued for $817,860 cash, which provided the holders an annual yield of 8%. Prepare the journal entry to record the first semiannual interest payment, assuming it uses the straight-line method of amortization.
Explanation / Answer
dr Bond Interest Expense 40,893
cr Discount on Bonds Payable 4,893
cr Cash 36,000
$720,000 x 1/2 x 10% = $36,000
($817,860 - 720,000) / 20 = $4,893
$36,000 + 4,893 = $40,893