Answer:
Journal Entry
June 30, 2020
Dr. Interest expense __$3,564.75
Cr. Discount on bonds_$64.75
Cr. Cash ___________$3,500
[To record interest]
Explanation:
First, we need to calculate the issuance price of the bond
Issuance price of the bond = Face value x Seling rate = $70,000 x 97/100 = $67,900
Now we need to calculate the discount value as follow
Discount = Face value - Isuance vaue = $70,000 - $67,900 = $2,100
Now, need to calculate the discount amortization as follow
Discount amortization = ( Carrying value of bond x Effective interest rate x 6/12 ) - ( Face value x Coupon rate x 6/12 ) = ( $67,900 x 10.5%x 6/12 ) - ( $70,000 x 10% x 6/12 = $3,564.75 - $3,500 = $64.75
Now calculate the interest payment
Interst payment = Face value x Coupon rate x 6/12 = $70,000 x 10% x 6/12 = $3,500