On January 1, 2017, Carter Sales issued $36,000 in bonds for $18,700. These are

Question

On January 1, 2017, Carter Sales issued $36,000 in bonds for $18,700. These are six-year bonds with a stated interest rate of 12%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the Bond Discount. Determine the following. The semi-annual cash interest payment Amortized Bond Discount What amount is debited to Interest Expense on June 30,2017 (first semi-annual)? Prepare the journal entry to record the June 30th interest payment. Show all your work Rodriguez Tint, Inc. uses the indirect method to prepare the statement of cash flows.

Explanation / Answer

1)

a) Semi-annually cash payment = $36000 * 12% * 6 months/ 12 Months

= $2160

Note:-  Interest is on par value

b) Amortized Bond Disocount :

  Discount issued in bond = Face value - Bond Issued

= $36000 - $18700

= $17300

"Amount of Bond Amortization" in each time interest is paid = $17300 / Number of payment

= $17300 /12

= $1441.67

Note:- Number of payment in 6 years of Bond = Semi-annually interest payment * Bond life

   = 2 * 6

= 12

c) Amount to be Debited to Interest Expenses on June30, 2017 :

= cash payment + Amortization Bond discount

= $2160 + 1441.67

= $3601.67

d) Jounral Entry:

(i)   Interest Expenses Dr.$3601.67

To cash $2160

   To Discount in Bond Payable $1441.67

(Beind Interest Paid on 30st june,2017)

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