Question

Sarasota Limited issued $380,000 of 9% bonds on January 1, 2020. The bonds are due on January 1, 2025, with interest payable each July 1 and January 1. The bonds are issued at 97. Sarasota Limited follows ASPE and records the amortization using the straight-line method.

Prepare the journal entry related to the bonds for January 1. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare the journal entry related to the bonds for July 1. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare the company’s journal entry for December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Cash received = $380,000 * $97 / $100 = $368,600

Bonds discount = $380,000 - $368,600 = $11,400

Bonds discount amortized each period = $11,400 / (5 * 2)

= $1,140

Prepare the journal entry related to the bonds for January 1.

January 1	Cash	$368,600
	Bonds discount	$11,400
	Bonds payable		$380,000

Prepare the journal entry related to the bonds for July 1.

July 1	Interest expense	$15,960
	Bond discount	$1,140
	Cash		$17,100 ($380,000*4.5%)

Prepare the company’s journal entry for December 31.

December 31	Interest expense	$15,960
	Bond discount	$1,140
	Cash		$17,100 ($380,000*4.5%)