On July 1, 2012, Brower Industries Inc. issued $2,500,000 of 5-year, 10% bonds a

Question

On July 1, 2012, Brower Industries Inc. issued $2,500,000 of 5-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $2,405,781. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.

Journalize the entry to record the amount of cash proceeds from the sale of the bonds. For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".

***this part i got correct*** but its the next to i'm not understanding where the numbers come from

Journalize the entries to record the following: (For a compound transaction, if an amount box does not require an entry, leave it blank or enter "0".)

a.The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
b.The interest payment on June 30, 2013, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)

**i am apparently getting the discount on bonds payable correct but i'm unable to figure out how to calculate the interest or the cash i keep getting it incorrect**

Explanation / Answer

1st july 12 Cash A/c………..Dr     2,405,781.00 Discounts on bonds payable A/c………Debit       94,219.00          To Bonds payable A/c 2,500,000.00 Ammortization of discount each year = 94219/5          18,843.80 31-Dec-12 Interest expense A/c………Debit        125,000.00 Discounts on bonds payable A/c………Debit           9,421.90               To Interest payable A/c     134,421.90 Interest computation = 2500,000*10%*6/12 Ammortization of discount semiannually = 18843.8/5 30-June-13 Interest expense A/c………Debit        125,000.00 Discounts on bonds payable A/c………Debit           9,421.90               To Interest payable A/c     134,421.90 If interest is paid then entry will be for both the dates Interest payable A/c………..Dr        125,000.00 To Bank/cash A.c     125,000.00 (It will not pay the amount set aside for discount as it will be paid at the time of redemption of bond)

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