required information problem 14 - 4a (algo) straight - line: amortization of bond discount lo p2 (the…

required information problem 14 - 4a (algo) straight - line: amortization of bond discount lo p2 (the following information applies to the questions displayed below.) legacy issues $680,000 of 6.5%, four - year bonds dated january 1, 2021, that pay interest semiannually on june 30 and december 31. they are issued at $645,669 when the market rate is 8%. problem 14 - 4a (algo) part 4 4. prepare the journal entries to record the first two interest payments. view transaction list journal entry worksheet 1 2 record the interest payment and amortization on june 30. note: enter debits before credits. date general journal debit credit june 30

required information problem 14 - 4a (algo) straight - line: amortization of bond discount lo p2 (the following information applies to the questions displayed below.) legacy issues $680,000 of 6.5%, four - year bonds dated january 1, 2021, that pay interest semiannually on june 30 and december 31. they are issued at $645,669 when the market rate is 8%. problem 14 - 4a (algo) part 4 4. prepare the journal entries to record the first two interest payments. view transaction list journal entry worksheet 1 2 record the interest payment and amortization on june 30. note: enter debits before credits. date general journal debit credit june 30

Answer

Explanation:

Step1: Calculate bond discount

The face - value of bonds is $680,000 and the issue price is $645,669. The bond discount is $680,000 - $645,669=$34,331.

Step2: Calculate semi - annual amortization of bond discount

The bonds have a 4 - year life with semi - annual periods, so there are $4\times2 = 8$ periods. The semi - annual amortization of the bond discount is $\frac{34,331}{8}=4,291.375\approx4,291.38$.

Step3: Calculate semi - annual interest payment

The semi - annual stated interest rate is $\frac{6.5%}{2}=3.25%$. The semi - annual interest payment is $680,000\times3.25% = 22,100$.

Step4: Record first interest payment on June 30

The interest expense is the sum of the interest payment and the amortization of the bond discount. Interest expense = $22,100 + 4,291.38=26,391.38$. The journal entry on June 30:

Date General Journal Debit Credit
June 30 Interest Expense 26,391.38
Discount on Bonds Payable 4,291.38
Cash 22,100

Step5: Record second interest payment on December 31

The journal entry on December 31 is the same as the June 30 entry.

Date General Journal Debit Credit
December 31 Interest Expense 26,391.38
Discount on Bonds Payable 4,291.38
Cash 22,100

Answer:

Date General Journal Debit Credit
June 30 Interest Expense 26,391.38
Discount on Bonds Payable 4,291.38
Cash 22,100
December 31 Interest Expense 26,391.38
Discount on Bonds Payable 4,291.38
Cash 22,100