Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
Interest paid semiannually on July 31, and Jan 31,
so the rate of interest is :- 9% × 6÷12 = 4.5% and 8% × 6÷12 = 4%
Date Interest Paid interest 4% Amortized Carrying value
expenses 4.50% discount amount
February,1 $735,474
July,31 $33,096 - $32,400 $696 $736,170
Jan.31 $33,128 - $32,400 $728 $736,898
Working note =
Paid interest = $810,000 × 4÷100 = 32,400
Interest expenses in July,31 = $735,474 × 4.5 ÷ 100
= 33,096.33 or $33,096
Interest expenses in January,31 = $736,170 × 4.5÷100
= 33,127.65 or $33,128
Carrying Value = Previous Carrying Value + Amortized Discount Amount
July,31
= $735,474 + $696
= $736,170
Jan,31 = $736,170 + $728 = $736,898
Journal Entry
Feb,1 Cash A/c Dr. $735,474
Discount on bonds payable A/c Dr. $74,526
To bonds payable A/c $810,000
(To Record the issuance of bond)
July,31 Interest expense A/c Dr. $33,096
To Discount on bonds payable A/c $696
To Cash A/c $32,400
(To Record the interest expense)
Dec,31 Interest expense A/c Dr. $27,606
(9% × 5÷12) × $736,170
To Discount on bonds payable A/c $606
To Cash A/c $27,000 (8% × 5÷12) × $810,000
(To Record the accrued interest)
Jan,31 Interest expense A/c Dr. $5,522
Interest payable A/c Dr. $27,000
To Cash A/c $32,400
To Discount on bonds payable A/c $122
($728 - $606) = $122
(To Record the interest on January)
