On December 31, 2011, Daggett Company issued $850,000 of ten-year, 9% bonds paya

Question

On December 31, 2011, Daggett Company issued $850,000 of ten-year, 9% bonds payable for $800,232, yielding an effective interest rate of 10%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and discount amortization (effective interest method) on June 30, 2012, and (c) the semiannual interest payment and discount amortization on December 31, 2012. Round amounts to the nearest dollar.

Explanation / Answer

Required journal entries are as prepared below:

Year Particulars L.F Debit ($) Credit ($) 2011 Dec-31 Cash 800,232 Unamortized Bond Discount 49,768 Bond payable 850,000 (for bond issued for 10 years) 2012 Particulars L.F Debit ($) Credit ($) Jun-30 Interest expense (800,232*10%*6/12) 40,012 Unamortized Bond Discount 1,762 Cash (850,000*9%*6/12) 38,250 (For interest paid on 9% bonds and amortization of discount) 2012 Particulars L.F Debit ($) Credit ($) Dec-31 Interest expense (800,232+1,762)*10%*6/12) 40,100 Unamortized Bond Discount 1,850 Cash (850,000*9%*6/12) 38,250 (For interest paid on 9% bonds and amortization of discount)

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