Required information [The following information applies to the questions display

Question

Required information

[The following information applies to the questions displayed below.]

Legacy issues $640,000 of 8.5%, four-year bonds dated January 1, 2017, that pay interest semiannually on June 30 and December 31. They are issued at $570,443 and their market rate is 12% at the issue date.

4. Prepare the journal entries to record the first two interest payments.

a. Record the interest payment and amortization on June 30, 2017.

b. Record the interest payment and amortization on December 31, 2017.

Explanation / Answer

PART A) June 30,2017

Bond interest expense Dr. (570443*12%/2) 34227

Discount of bonds payable Cr. (34227-27200) 7027

Cash Cr. (640000*8.5%/2)     27200

PART B December 31, 2017

Bond interest expense Dr. ((570443+7027)*12%/2) 34648

Discount of bonds payable Cr. (34648-27200) 7448

Cash Cr. (640000*8.5%/2)     27200

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