Q23E_1 Journalizing bond issuance and i... [FREE SOLUTION]

Chapter 12: Q23E_1 (page 660)

Journalizing bond issuance and interest payments
On June 30, Daughtry Limited issues 8%, 20-year bonds payable with a face value of$130,000. The bonds are issued at 86 and pay interest on June 30 and December 31.
Requirements
1. Journalize the issuance of the bonds on June 30.
2. Journalize the semi-annual interest payment and amortization of bond discount on December 31.

Expert verified

The cash account and discount on bonds payable are debited with $111,800, and $18,200.The bonds payable account is credited with $130,000.
The interest expenses debited by $5,495. The discount on bonds payable and cash is credited by $295 and $5,200.

Date	Particulars	Debit	Credit
June 30	Cash	$111,800
	Discount on Bonds Payable	$18,200
	8% Bonds Payable		$130,000
	(To record the issue of the bond)

$\begin{matrix} Issue Price = Par Value 脳 \frac{$ 86}{100} \\ = $ 130, 000 脳 \frac{$ 92}{100} \\ = $ 111, 800 \end{matrix}$

$\begin{matrix} Discount on Bonds Payable = Par Value - Issue Price \\ = $ 130, 000 - $ 111, 800 \\ = $ 18, 200 \end{matrix}$

Date	Particulars	Debit	Credit
December 31	Interest Expense	$5,495
	Discount on Bonds Payable		$295
	Cash		$5,200
	(To record the semi-annual payment and amortization of discount)

$\begin{matrix} Coupon Amount = Par Value 脳 Coupon Rate 脳 Time Period \\ = $ 130, 000 脳 8 % 脳 \frac{6}{12} \\ = $ 5, 200 \end{matrix}$

$\begin{matrix} Discount Amortize = \frac{Discounton Bonds Payable}{Semi-annualPeriod} \\ = \frac{$ 11, 800}{20 脳 2} \\ = $ 295 \end{matrix}$

$\begin{matrix} Interest Expenses = Discount On Bond Amortized + Coupon Amount \\ = $ 295 + $ 5, 200 \\ = $ 5, 495 \end{matrix}$

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