Question

On the first day of the fiscal year, a company issues a $8,800,000, 7%, 10-year bond that pays semiannual interest of $308,000 ($8,800,000 × 7% × ½), receiving cash of $7,655,303. Required:Journalize the first interest payment and the amortization of the related bond discount.

Answer 1

Answer and Explanation:

The journal entry is shown below:

Interest expense $403,391

       To Cash $308,000

       To Discount on note payable $95,391

{($8,800,000 - $7,655,303) ÷ 12}

Here we debited the interest expense as it increased the expenses and credited the cash as it decreased the assets and credited the discount on note payable