Straight-line amortization of bond discount Four Seasons issues $1,730,000 of 6%
ID: 2486959 • Letter: S
Question
Straight-line amortization of bond discount
Four Seasons issues $1,730,000 of 6%, 4-year bonds dated January 1, 2015, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $1,650,000.
Required
Prepare the January 1, 2015, journal entry to record the bonds’ issuance.
For each semiannual period, compute (a) the cash payment, (b) the straight-line discount amortization, and (c) the bond interest expense.
Determine the total bond interest expense to be recognized over the bonds’ life.
Prepare an amortization table like Exhibit 14.7 using the straight-line method. 5.Prepare the journal entries to record all the interest payments. 6. Record the journal entry to record the payback of the bond at maturity
Explanation / Answer
jan 1 - cash debit 1650000
discount on bonds payabke debit 80000
credit bond payable 1730000
Amount of cash Payment = 1730000*3% = 51900 -10000 = 41900
amount of discount amortization = 80000/4*2 = 10000
amount of interest expense = 1730000*3% = 51900
total bond interest expense to be recognized = 51900*4* 2 = 415200
june 30 1015
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
december 30 1015
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
june 30 2016
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
december 30 2016
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
june 30 2017
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
december 30 2017
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
june 30 2018
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
december 30 2019
interest expense debit 51900
credit cash 41900
credit discount on bonds payable 10000
december 30 2018
bonds payable debit 1730000
credit cash 1730000
time interest expense discount amortized balance in discount 0 80000 1 51900 10000 70000 2 51900 10000 60000 3 51900 10000 50000 4 51900 10000 40000 5 51900 10000 30000 6 51900 10000 20000 7 51900 10000 10000 8 51900 10000 0