qs 14 - 10 (algo) recording bond issuance and discount amortization lo p2\nsnap company issues 12%, five…
qs 14 - 10 (algo) recording bond issuance and discount amortization lo p2\nsnap company issues 12%, five - year bonds, on january 1 of this year, with a par value of $110,000 and semiannual interest payments.\nsemiannual period - end unamortized discount carrying value\n(0) january 1, issuance $7,380 $102,700\n(1) june 30, first payment 6,570 103,430\n(2) december 31, second payment 5,840 104,160\nuse the above bond amortization table and prepare journal entries to record\n(a) the issuance of bonds on january 1,\n(b) the first interest payment on june 30, and\n(c) the second interest payment on december 31.\nview transaction list\njournal entry worksheet\n1 2 3\nrecord the issuance of the bonds.\nnote: enter debits before credits.\ndate general journal debit credit\njanuary 01
Answer
Explanation:
Step1: Record bond - issuance
The par - value of the bonds is $110,000 and the carrying value at issuance is $102,700. The difference is the unamortized discount. Cash received is the carrying value. Debit: Cash $102,700 Debit: Discount on Bonds Payable $7,300 Credit: Bonds Payable $110,000
Step2: Record first interest payment
The semi - annual interest rate is $\frac{12%}{2}=6%$. The interest expense is calculated based on the carrying value and the market interest rate. The interest paid is based on the par value and the stated rate. Interest paid = $110,000\times6% = 6,600$ Carrying value at the start of the period (after issuance) is $102,700. Let's assume the interest expense is calculated as $102,700\times r$ (where $r$ is the semi - annual market rate). But we can also use the relationship between interest paid, interest expense and discount amortization. Discount amortized = $6,600 -$ Interest expense. From the table, the unamortized discount at June 30 is $6,570, so the discount amortized is $7,300 - 6,570=730$. Interest expense = $6,600 + 730=7,330$ Debit: Interest Expense $7,330 Credit: Discount on Bonds Payable $730 Credit: Cash $6,600
Step3: Record second interest payment
Interest paid = $110,000\times6% = 6,600$ The unamortized discount at December 31 is $5,840, so the discount amortized since June 30 is $6,570 - 5,840 = 730$ Interest expense = $6,600+730 = 7,330$ Debit: Interest Expense $7,330 Credit: Discount on Bonds Payable $730 Credit: Cash $6,600
Answer:
| Date | General Journal | Debit | Credit |
|---|---|---|---|
| January 01 | Cash | $102,700 | |
| Discount on Bonds Payable | $7,300 | ||
| Bonds Payable | $110,000 | ||
| June 30 | Interest Expense | $7,330 | |
| Discount on Bonds Payable | $730 | ||
| Cash | $6,600 | ||
| December 31 | Interest Expense | $7,330 | |
| Discount on Bonds Payable | $730 | ||
| Cash | $6,600 |