On February 1, 2013, Fox Corporation issued 9% bonds dated February 1, 2013, wit

Question

On February 1, 2013, Fox Corporation issued 9% bonds dated February 1, 2013, with a face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Fox's fiscal year is the calendar year. Fox uses the straight-line method of amortization.

You may wish to prepare a partial amortization table. (Highly recommended!)

Required: 1. Prepare the journal entry to record the bond issuance for Fox on February 1, 2013. 2. Prepare the entry for Fox to record interest on July 31, 2013. 3. Prepare the necessary journal entry for Fox on December 31, 2013. 4. Prepare the necessary journal entry for Fox on January 31, 2014.

Explanation / Answer

1. Prepare the journal entry to record the bond issuance for Fox on February 1, 2013.

Debit: Cash 182,841

Debit: Discount on Bonds Payable 17,159

Credit: Bonds Payable 200,000

2. Prepare the entry for Fox to record interest on July 31, 2013.

Straight-line amortization of discount: 17,159/40 = 428.98

Cash interest payment: 200,000*.09*.5 = 9,000

Journal entry:

Debit: Bond Interest Expense 9,428.98

Credit: Cash 9,000

Credit: Discount on Bonds Payable 428.98

3. Prepare the necessary journal entry for Fox on December 31, 2013.

This would be an adjusting entry for 5 months.

428.98*5/6 = 357.48

9,000*5/6 = 7500

Journal entry:

Debit: Bond Interest Expense 7,857.48

Credit: Bonds Interest Payable 7,500

Credit: Discount on Bonds Payable 357.48

4. Prepare the necessary journal entry for Fox on January 31, 2014.

Debit: Bond Interest Expense 1,571.50

Debit: Bonds Interest Payable 7,500

Credit: Cash: 9,000

Credit: Discount on Bonds Payable 71.50

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