On January 1, the first day of the fiscal year, a company issues a $1,200,000, 9
ID: 2491212 • Letter: O
Question
On January 1, the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of $54,000 ($1,200,000 × 9% × ½), receiving cash of $1,153,670. Journalize the bond issuance. Refer to the Chart of Accounts for exact wording of account titles.
On January 1, the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of $54,000 ($1,200,000 × 9% × ½), receiving cash of $1,153,670. Journalize the bond issuance. Refer to the Chart of Accounts for exact wording of account titles.
JOURNAL
1
2
3
DATE DESCRIPTION POST. REF. DEBIT CREDIT1
2
3
Explanation / Answer
1. Issuing Bonds at Discount
01/01/20X0 Cash a/c dr..............$ 1,153,670
Discount on issue of bonds ....... $ 46,330
To 9% Bond payable....... $ 1,200,000
(Being Bond vaue of $ 1,200,000 issued at discount)
2.June 30th Interest Expense a/c......$ 58,633
To Discount on issue of bonds ....$ 4,633
To Cash $ 54,000
(Being Interest for the First half period paid and Discount on issue of bonds has been amortised as per Stright line method)
3. 31/12
Interest Expense a/c......$ 58,633
To Discount on issue of bonds ....$ 4,633
To Cash $ 54,000
(Being Interest for the Second half period paid and Discount on issue of bonds has been amortised as per Stright line method)
Working Note:
the amortization of bond discount is often recorded at the time of its semiannual interest payments
Total bond discount = $ 46,330
Amortised cost of bonds discount semiannually = $ 4,633 (46330/5*1/2)