QS 14-7 Recording bond issuance and discount amortization LO P1, P2 Sylvestor Co

Question

QS 14-7 Recording bond issuance and discount amortization LO P1, P2

Sylvestor Company issues 10%, five-year bonds, on December 31, 2016, with a par value of $110,000 and semiannual interest payments.

Use the above bond amortization table and prepare journal entries to record

(a) the issuance of bonds on December 31, 2016

(b) the first interest payment on June 30, 2017

(c) the second interest payment on December 31, 2017.
  

Semiannual Period-End Unamortized Discount Carrying Value (0) 12/31/2016 $ 8,200 $ 101,800 (1) 6/30/2017 7,380 102,620 (2) 12/31/2017 6,560 103,440

Explanation / Answer

S.no. Date Account titles and explanations Debit Credit (a) December 31, 2016 Cash $       1,01,800 Discount on Bonds Payable $             8,200 Bonds Payable $       1,10,000 (To record issuance of bonds) (b) June 30, 2017 Interest Expense $             6,320 Cash $             5,500 Discount on bonds payable $ 820 (to record interest expense) Working: Discount on bonds payable amortized $             8,200 - $    7,380 = $ 820 Coupon Interest paid in cash $       1,10,000 x 5% = $       5,500 (Par Value x Semi annual Coupon rate) Interest Expense $       6,320 (c) December 31, 2017 Interest Expense $             6,320 Cash $             5,500 Discount on bonds payable $ 820 (to record interest expense) Working: Discount on bonds payable amortized $             7,380 - $    6,560 = $ 820 Coupon Interest paid in cash $       1,10,000 x 5% = $       5,500 (Par Value x Semi annual Coupon rate) Interest Expense $       6,320

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