Question

On January 1, Bravo Corporation issued $250,000, 6%, 5-year bonds at 96. Interest is payable semiannually on July 1 and January 1.

Instructions

Prepare journal entries to record the

(a)   Issuance of the bonds.

(b)   Interest entries at time of payment on July 1, assuming no previous accrual of interest. Need to also show the entry of the amortization of the discount to interest.

(c)   Interest entries for the accrual of interest on December 31. Need to also show the entry of the amortization of the discount to interest.

Note: Rows in the table may be more than the spaces required for the journal entries.

Answer 1

Date		Debit	Credit
Jan 01	Cash ($250,000x96%)	$240,000
	Discount on Issue of Bonds	$10,000
	Bonds Payable		$250,000
	To record the issue of bonds at a discount of $10,000
July 31	Interest Expense	$ 8,500.00
	Discount on Issue of Bonds ($10,000/10 interest payments)		$ 1,000.00
	Cash		$ 7,500.00
	To record periodic interest payment and amortization of discount over 10 interest payments (5 years x 2)
Dec 31	Interest Expense	$ 8,500.00
	Discount on Issue of Bonds ($10,000/10 interest payments)		$ 1,000.00
	Interest Payable		$ 7,500.00
	To record periodic interest accrual and amortization of discount