Answer:
Universe of Fun
Journal Entries are used to record transactions:
January 1, 2021:
Debit Cash Account $692,353
Debit Bonds Discount $57,647
Credit Bonds Payable $750,000
To record the issue of 9% bonds, semiannual interest, that mature in 15 years.
June 30, 2021:
Debit Interest Expense $35,672
Credit Discount Amortization $1,922
Credit Cash Account $33,750
To record the interest expense and discount amortization.
December 31, 2021:
Debit Interest Expense $35,672
Credit Discount Amortization $1,922
Credit Cash Account $33,750
To record the interest expense and discount amortization.
Step-by-step explanation:
Bonds Payable = $750,000
Bonds issued at a discount = $692,353
Bonds discount = $57,647 ($750,000 - $692,353)
Interest rate = 9%
Interest expense, semiannually = $33,750 ($750,000 * 9%)/2
Maturity of bonds = 15 years
Bonds discount will be amortized over 15 at $3,843 per annum ($57,647/15) on straight-line basis
Bonds discount semiannually = $1,922
b) Bonds discount arise as Universe of Fun issues the $750,000 bonds for $692,353 (less by $57,647). This means that the bondholders are paying less than the face value, but will be repaid the full face value at maturity.
