Question

George's Hamburgers issued 5â%, â10-year bonds payable at 85 on Decemberâ 31, 2016. At Decemberâ 31, 2018, George reported the bonds payable asâ follows:
Long-term Liabilities:
Bonds Payable $300,000
Less: Discount on Bonds Payable 36,000 $264,000
George's pays semiannual interest each June 30 and December 31.â(Assume bonds payable are amortized using theâ straight-line amortizationâ method.)
Requirement 1. Answer the following questions about
George's bondsâ payable:
a. What is the maturity value of theâbonds?â____
b. What is the carrying amount of the bonds at Decemberâ 31, 2018â?
____
c. What is the semiannual cash interest payment on theâ bonds?
â_____
d. How much interest expense should the company record eachâ year?
â_____
Requirement 2. Record the Juneâ 30, 2018â, semiannual interest payment and amortization of the discount.â(Record debitsâ first, then credits. Select the explanation on the last line of the journal entryâ table.)

Answer 1

Answer:

1. The maturity value is $300,000

2. The carrying amount of the bonds is at December​ 31, 2018 is $264,000

3.  Semiannual cash interest payment on the bond = $300,000 * 5% * 1/2 = $7,500

4. Discount on BP = $300,000 * 15% = $45,000

Straight line method amortization = $45,000 / ( 10*2 = 20) = $2,250

Interest Expenses = $7,500 + $2,250 = $9,750

Journal Entry                          Debit          Credit

Interest Expenses                 $9,750  

Discount on Bond Payable                      $2,250

Cash                                                           $7,500