Answer:
discount on BP 8,000 debit
cash 592,000 debit
bond payable 600,000 credit
-to record issuance of the bonds--
interest expense 15,416.67 debit
interest payable 15,000 credit
discount on BP 416.67 credit
--to record year-end adjustment entry--
interest payable 15,000 debit
interest expense 3,083.33 debit
cash 18,000 credit
Discount on BP 416.67 credit
-to record first interest payment to bondholders--
Explanation:
proceeds from the bonds: 592,000
face value of the bonds. (600,000)
discount on BP (8,000)
We amortize over the life of the bond in equal parts:
8,000 / 20 payment (10years x 2 payment per year) = 500
interest accrued from August 1st to December 31th:
face value x rate x time accrued
600,000 x 6% x 5/12 = 15,000
accrued proportional amortization
amortizationfor 6 months x accrued month
from Augsut 1st to December 31th
500 x 5/6 = 416.67
February 1st payment:
600,000 x 6% x 1/12 = 3,000 interest expense
cash outlay:
600,000 x 6% x 6/12 = 18,000
amortization 500 - 416.67 = 83.33
