Answer:
January 1, 2017
Dr. Cash $844,020
Dr. Discount on Bond $55,980
Cr. Bond Payable $900,000
July 1, 2017
Dr. Interest Expense $43,299
Dr. Discount on Bond $2,799
Cr. Interest on Bond Payable $40,500
December 31, 2017
Dr. Interest Expense $43,299
Dr. Discount on Bond $2,799
Cr. Interest on Bond Payable $40,500
Explanation:
The bond is issued on discount when the bond issuance proceeds are less than the face value of the bond. The discount is expensed over the bond period until maturity. It is added to the interest expense value to expense it.
Sale Proceeds = $900,000 x 93.78% = $844,020
Discount on the bond = Face value - cash proceeds = $900,000 - $844,020 = $55,980
This Discount will be amortized over the bond's life till maturity and added to interest expense.
Amortization = $55,980 / 10 years = 5,598 per year = $2,799 per six months
Coupon Payment = Face Value x Coupon Rate = $900,000 x 9% = $81,000 per years = $40,500 per six months
Interest Expense = $40,500 + $2,799 = $43,299
