Bond Discount, Entries for Bonds Payable Transactions On July 1, 2014, Brower In
ID: 2500509 • Letter: B
Question
Bond Discount, Entries for Bonds Payable Transactions
On July 1, 2014, Brower Industries Inc. issued $4,000,000 of 7-year, 8% bonds at a market (effective) interest rate of 10%, receiving cash of $3,604,053. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, 2014. For a compound transaction, if an amount box does not require an entry, leave it blank.
2. Journalize the entries to record the following: For a compound transaction, if an amount box does not require an entry, leave it blank.
a. The first semiannual interest payment on December 31, 2014, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2015, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2014. Round to the nearest dollar
Explanation / Answer
Total bond discount=face value of bond - received price of bond
= 4000000-3604053
= 395947
This bond discount has to amortized in its life period of 7 years. Therefore 395947÷7=56564 have to be amortized annually or 28282 semiannually as bond discount.
Payment of interest on 8%of 4000000 is 320000 annually or 160000 semiannually.
1. Journal
cash
discount on bonds payable
Bonds payable
3604053
395947
4000000
2.
a. Journal
interest expenses
discount on bonds payable
cash
188282
28282
160000
b. Journal
interest expense
discount on bonds payable
cash
188282
28282
160000
3..
Total interest expense for 2014 is $ 188282.
Date account name debit credit July1,2014cash
discount on bonds payable
Bonds payable
3604053
395947
4000000