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On Jul 1, BGA issued $1,500,000 of Bonds Payable at 95, with semi-annual, 6% interest due...

On Jul 1, BGA issued $1,500,000 of Bonds Payable at 95, with semi-annual, 6% interest due next on Jan 1. Bonds have two year maturity and mature on Jul 1, 2019. Accrue the Interest Expense and related liability as of Dec 31, 2017 for the interest due on Jan 1, 2018. Record this transaction on the journal entry.

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Answer #1

Solution: (assuming straight line method of amortization)

Discount on Bond payable = $1,500,000 - $1,500,000*95% = $75,000

Time = 2 years = 4 half years

Semi annual discount amortization = $75000 / 4 = $18,750

Journal Entries - BGA
Date Particulars Debit Credit
31-Dec-17 Interest Expense Dr $63,750
       To Discount on Bond Payable $18,750
       To Interest payable ($1,500,000*6%*6/12) $45,000
(To record accrual of Interest and Amortization of discount on issue)
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