Question

On January 1, 2021, Splash City issues $340,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year. Assuming the market interest rate on the issue date is 10%, the bonds will issue at $310,831.
On January 1 2021, Splash City issues $390,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.
Assuming the market interest rate on the issue date is 6%, the bonds will issue at $419,013.

Required:
a. Record bonds issued at a discount and related semiannual interest.

Answer 1

Answer:

Dr cash                                          $310,831

Dr discount on bonds payable   $29,169

Cr bonds payable                                             $340,000

On 30th June 2021

Dr  interest expense      $ 15,542  

Cr cash                                            $15,300

Cr discount on bonds payable        $242

On 31st   December  2021

Dr  interest expense      $ 15,554  

Cr cash                                            $15,300

Cr discount on bonds payable        $254

Explanation:

The bond issued at a discount is the first bond whose cash proceeds of $310,831 were less than face value of $340,000.

Discount=face value -cash proceeds=$340,000-$310,831=$29,169.00  

Find attached bond amortization schedule.

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