Question

The Ayayai Company issued $260,000 of 10% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 98. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Ayayai Company records straight-line amortization semiannually

Answer 1

Answer:

Journal entries on January 1:

Dr  Cash                                    $254,800

Dr Discount on bonds payable$5200

Cr Bonds payable                                   $260,000

July 1:

Dr Interest expense $13,520

Cr cash                                        $13,000

Cr Discount on bonds payable   $520    

December 31:

Dr Interest expense $13,520

Cr cash                                        $13,000

Cr Discount on bonds payable   $520  

Explanation:

The proceeds of issue =$260,000*98%=$254,800

Discount on bonds payable=Par value-cash proceeds

par value is $260,000

Discount on bonds payable=$260,000-$254,800=$5200

The discount amortization on semi-annual basis=$5200 /5*6/12=$520

Semi-annual interest on the bond =$260,000*10%*6/12=$13,000.00