exercise 14 - 5 (algo) straight - line: recording bond issuance and discount amortization lo p2\npaulson…
exercise 14 - 5 (algo) straight - line: recording bond issuance and discount amortization lo p2\npaulson company issues 9%, four - year bonds, on january 1 of this year, with a par value of $99,000 and semiannual interest payments.\nsemiannual period - end unamortized discount carrying value\n(0) january 1, issuance $6,713 $92,287\n(1) june 30, first payment 5,874 93,126\n(2) december 31, second payment 5,035 93,965\nuse the above straight - line bond amortization table and prepare journal entries for the following.\n(a) the issuance of bonds on january 1.\n(b) the first interest payment on june 30.\n(c) the second interest payment on december 31.\njournal entry worksheet\nrecord the issuance of the bonds on january 1.\nnote: enter debits before credits.\ndate general journal debit credit\njanuary 01
Answer
Explanation:
Step1: Record bond issuance
When bonds are issued at a discount, cash is debited for the amount received (carrying - value), discount on bonds payable is debited for the difference between par - value and carrying - value, and bonds payable is credited for the par - value. Debit: Cash $92,287$, Discount on Bonds Payable $6,713$; Credit: Bonds Payable $99,000$
Step2: Record first interest payment
The interest expense is the sum of the cash interest payment and the amortization of the discount. The cash interest payment is calculated as par - value $\times$ annual interest rate $\div2$. The amortization of the discount is the difference in unamortized discount between issuance and first payment. Cash interest payment = $99,000\times9%\div2 = 4,455$. Amortization of discount = $6,713 - 5,874=839$. Interest expense = $4,455 + 839=5,294$. Debit: Interest Expense $5,294$; Credit: Discount on Bonds Payable $839$, Cash $4,455$
Step3: Record second interest payment
Similar to step 2, calculate the amortization of the discount as the difference in unamortized discount between first and second payment. Amortization of discount = $5,874 - 5,035 = 839$. Cash interest payment is still $4,455$. Interest expense = $4,455+839 = 5,294$. Debit: Interest Expense $5,294$; Credit: Discount on Bonds Payable $839$, Cash $4,455$
Answer:
| Date | General Journal | Debit | Credit |
|---|---|---|---|
| January 1 | Cash | $92,287$ | |
| Discount on Bonds Payable | $6,713$ | ||
| Bonds Payable | $99,000$ | ||
| June 30 | Interest Expense | $5,294$ | |
| Discount on Bonds Payable | $839$ | ||
| Cash | $4,455$ | ||
| December 31 | Interest Expense | $5,294$ | |
| Discount on Bonds Payable | $839$ | ||
| Cash | $4,455$ |