ESSAY. Write your answer in the space provided. 33) (7 points) S Company issued

Question

ESSAY. Write your answer in the space provided. 33) (7 points) S Company issued S1,000 000 8%, 10-year bonds on December 31, 2016, for $960,000 Interest is payable semi-annually on June 30 and December 31 each year. S Corporation uses the straight-line method to amortize bond premium or discount Required Prepare the journal entries to record the following events: (A) The payment of interest and the discount amortization on June 30, 2017. DR CR (B) The redemption of the bonds at maturity (December 31, 2026), assuming interest for the last interest period has been paid and recorded DR CR

Explanation / Answer

Solution :

a)

Working Notes -

Interest for the half year = $ 1000000 * 8% * 6/12 = $ 40000

Discount to be amortized for the half year = ($1000000-$960000)/10 * 6/12 = $ 2000

b)

Date Particulars Amount Debit (in $) Amount Credit (in $) 30.06.2017 Interest Expense Dr...... 40000 To Cash A/c 40000 30.06.2017 Profit & Loss A/c Dr...... 2000 To Discount on bonds A/c 2000

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