Question

On the first day of the fiscal year, a company issues an $882,000, 8%, five-year bond that pays semiannual interest of $35,280 ($882,000 x 8% x 1/2), receiving cash of $829,100. Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method. If an amount box does not require an entry, leave it blank.

Answer 1

Answer and Explanation:

The journal entry is shown below:

Interest Expenses $ 40,570

            To Discount on bonds payable {($882,000 - $829,100) ÷ 10 years} $5,290

             To Cash  $35,280

(Being the interest expense is recorded)

For recording this we debited the interest expense as it increased the expenses and credited the discount on note payable and cash as it decreased the assets so cash is credited