Ex 14-6 Entries for issuing bonds and amortizing discount by stralght-line me On

Question

Ex 14-6 Entries for issuing bonds and amortizing discount by stralght-line me On the first day of its fiscal year, Keller Company issued $25,000,000 of five-ven bonds to finance its operations of producing and selling home imirovement rd 10% Interest is payable semiannually. The bonds were issued at a markes (effective rate of 12%, resulting in Keller Company receiving cash of $23,160,113. a. Journalize the entries to record the following: interest 1. Sale of the bonds. 2. First semiannual interest payment. (Amortization of discount is to be recorded annually.) 3. Second semiannual interest payment. Amortization of discount at the end of the first year, using the straight-line method (Round to the nearest dollar.) 4. Determine the amount of the bond interest expense for the first year. than for the face amount of $25,000,000. e company was able to issue the bonds for only $23,160,113 rather

Explanation / Answer

PART-1)

Debit

Credit

1

Cash

23,160,113

Discount on Bonds Payable

1,839,887

Bonds Payable

25,000,000

2

Bond Interest Expense

1,250,000

Cash

1,250,000

$25,000,000 * 10% * 6/12

3&4

Bond Interest Expense

1,433,989

Discount on Bonds Payable

183,989

Cash

1,250,000

PART-2) Solution: $2,683,989?

Working:

$1,250,000 + $1,433,989 = $2,683,989?

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Part-3) The bonds were issued at a discounted price because the stated rate on the bonds (10%) is lesser in comparison to the market rate (12%).

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Debit

Credit

1

Cash

23,160,113

Discount on Bonds Payable

1,839,887

Bonds Payable

25,000,000

2

Bond Interest Expense

1,250,000

Cash

1,250,000

$25,000,000 * 10% * 6/12

3&4

Bond Interest Expense

1,433,989

Discount on Bonds Payable

183,989

Cash

1,250,000

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