Explanation:
The journal entries are as follows
1. Cash Dr $294,000
Discount on bonds payable $6,000
To Bonds payable $300,000
(Being the issuance of the bond is recorded)
2. Bond interest expense $21,150
To Discount on bonds payable $150
To Cash $21,000
(Being the bond interest expense is recorded)
The computation is shown below:
For bond interest expense
= $300,000 × 14% ÷ 2
= $21,000
And, the discount on bond payable is
= ($300,000 - $294,000) ÷ 40 years
= $150
3. Bond interest expense $14,100
To Discount on bonds payable $100
To Bond interest payable $14,000
(Being the accrued interest is recorded)
The bond interest expense is
= $21,000 × 4 months ÷ 6 months
= $14,000
The discount on bond payable is
= $150 × 4 months ÷ 6 months
= $100
4. Bond interest payable $14,000
Bond interest expense $7,050
To Discount on bonds payable $50
To Cash $21,000
(Being the interest is recorded)
