On January 1, Year 1, Price Co. issued $144,000 of five-year, 6 percent bonds at 95....
On January 1, Year 1, Price Co. issued $144,000 of five-year, 6 percent bonds at 95. Interest is payable annually on December 31. The discount is amortized using the straight-line method. Required Prepare the journal entries to record the bond transactions for Year 1 and Year 2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
A) Record the entry for issuance of bonds.
B) Record the entry for recognizing interest expense on Dec. 31, Year 1.
C) Record the entry for recognizing interest expense on Dec. 32, Year 2.
Homework Answers
Face Value of bonds = $ 144000
issue price of the bond = $ 95
no of bonds issued = 144000 / 100
= 1440 bonds
proceeds from issue of bonds = 1440 * 95
= $ 136800
discount on bonds = Face Vaalue - proceeds From issue
= 144000 - 136800
= $ 7200
Straight line Amortization per year
= Discount / Term of the bonds
= 7200 / 5
= $ 1440 per year
interest payment for Annual period = 144000 * 6%
= $ 8640
| Date | Accounts Name | Debit | Credit |
| A | Bond Issue journal entry | ||
| 1-Jan | Cash | 136800 | |
| Discount on bonds | 7200 | ||
| Bonds Payable | 144000 | ||
| B | |||
| year - 1 | Interest Expense ( 8640+1440) | 10080 | |
| Discount on bonds | 1440 | ||
| Cash | 8640 | ||
| year 2 | |||
| C | Interest Expense ( 8640+1440) | 10080 | |
| Discount on bonds | 1440 | ||
| Cash | 8640 |
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