Question

On January 1, 2013, JWS Corporation issued $677,000 of 9% bonds, due in 10 years. The bonds were issued for $634,816, and pay interest each July 1 and January 1. JWS uses the effective-interest method.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 10%.

Answer 1

Journal entry

Date	account and explanation	debit	credit
Jan 1	Cash	634816
	Discount on bonds payable	42184
	Bonds payable		677000
	(To record bond issue)
July 1	Interest expense (634816*5%)	31741
	Discount on bonds payable		1276
	Cash (677000*4.5%)		30465
	(To record interest)
Dec 31	Interest expense (634816+1276)*5%	31805
	Discount on bonds payable		1340
	Interest payable		30465
	(To record interest)