On January 31, Doherty Logistics, Inc., issued five-year, 7% bonds payable with

Question

On January 31, Doherty Logistics, Inc., issued five-year, 7% bonds payable with a face value of $8,000,000. The bonds were issued at 96 and pay interest on January 31 and July 31. Doherty Logistics, Inc., amortizes bond discounts and premiums by the straight-line method. Is this bond selling at a discount or a premium? Do the journal entries to record: (a) issuance of the bonds on January 31 (b) the semiannual interest payment and amortization of bond discount on July 31 (c) the interest accrual and discount amortization on December 31.

Explanation / Answer

Date Account Head Debit Credit Jan 31st Cash                                      7,68,000.00 Discount on issue of bonds                                          32,000.00 Bond Payable     8,00,000.00 Jul 31st Interest Expense                                          31,200.00 Discount on issue of bonds           3,200.00 Cash        28,000.00 Dec 31st Interest Expense                                          26,000.00 Discount on issue of bonds           2,666.67 Interest Payable        23,333.33 Workings Face vale of the Bond                                      8,00,000.00 Issue price of the bond=800000*96/100                                      7,68,000.00 Discount on issue                                          32,000.00 Coupon Interest=Face value of the bond *7%/2                                          28,000.00 Semi annual Amount of amortisation=32000/10 3200

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