Question

The Bridgeport Company issued $340,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 97.

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Bridgeport Company records straight-line amortization semiannually. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	January 1, 2017
(b)	Jan. 1, 2017July 1, 2017Dec. 31, 2017
(c)	Jan. 1, 2017July 1, 2017Dec. 31, 2017

Answer 1

In straight line amortization, the premium received or discount given on issue of bond is amortized over the bond period maturity on straight line basis. Formula is (Discount / Premium Amount) divided by bond period.

$340,000 10% Face Value Rate Issue Proceeds ($340000/100 x 97] Discount ($340000-$329800] Interest Payment [($340000 x 10%)/2] Period (1st Jan 2017 to 1st Jan 2022] Straight Line Amortisation ($10200/(5x2)] $329,800 $10,200 $17,000 $1,020 Credit Sr.No (a) Debit $329,800 $10,200 $340,000 (b) $18,020 Date Account Title Jan 1, 2017 Cash Discount on Bond Payable Bond Payable July 1, 2017 Interest Expense Discount on Bond Payable Cash Dec 31, 2017 Interest Expense Discount on Bond Payable Interest Payable $1,020 $17,000 (c) $18,020 $1,020 $17,000