Legacy issues $325,000 of 5%, four_year bonds dated January 1, 2013, that pay in
ID: 2501929 • Letter: L
Question
Legacy issues $325,000 of 5%, four_year bonds dated January 1, 2013, that pay interest semiannually on june 30 and December 31, They are issued at $292,181 and their market rate is 8% at the issue date. Prepare the January 1, 2013, journal entry to record the bonds' issuance. Determine the total bond interest expense to be recognized over the bonds' life. Prepare a straight-line amortization table like the one in Exhibit 14.7 for the bonds' first two years. prepare the journal entries to record the first two interest payments.Explanation / Answer
1.
Journal of bond issuance:
Date
Accounts and explanation
P.ref.
Debit
Credit
1/1/13
Cash
$292,181
Discount on bonds payable
$32,819
Bonds payable
$325,000
To record issuance of bond at discount.
2.
Total bond interest expense = Total stated interest + Discount
= {($325,000 × 5% × ½) × 8} + $32,819
= $65,000 + $32,819
= $97,819
3.
Straight-line amortization table
Date
Bonds payable
Discount
Carrying value
1/1/13
$325,000
$32,819
(325,000-32819 =) $292,181
30/6/13
$292,181
32,819×1/8 = 4102
(292,181+4102 =) $296,283
31/12/13
$296,283
32,819×1/8 = 4102
(296,283+4102 =) $300,385
30/6/14
$300,385
32,819×1/8 = 4102
(300,385+4102 =) $304,487
31/12/14
$304,487
32,819×1/8 = 4102
(304,487+4102 =) $308,589
4.
Journals for interest payments
Date
Accounts and explanation
P.ref.
Debit
Credit
30/6/13
Interest expense
$12,227
Discount on bonds payable
$4,102
Cash (325000×5%×1/2)
$8,125
To record semiannual interest expense.
31/12/13
Interest expense
$12,227
Discount on bonds payable
$4,102
Cash (325000×5%×1/2)
$8,125
To record semiannual interest expense.
Date
Accounts and explanation
P.ref.
Debit
Credit
1/1/13
Cash
$292,181
Discount on bonds payable
$32,819
Bonds payable
$325,000
To record issuance of bond at discount.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.