Question

The Swifty Company issued $300,000 of 8% 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 96. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Swifty Company records straight-line amortization semiannually. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Explanation:

The journal entries are shown below:

a. On January 1

Cash A/c Dr $288,000      ($300,000 × 96%)

Discount on Note payable A/c  Dr $12,000

               To Note Payable A/c $300,000

(Being the note payable is recorded at discount)

b. On July 1

Interest expense A/c Dr $13,500

             To Discount on bonds payable A/c $1,500   ($12,000 ÷ 8)

             To Cash A/c  $12,000            ($300,000 × 8% ÷ 2)

(Being interest expense is recorded)

c. On December 31

Interest expense A/c Dr $13,500

             To Discount on bonds payable A/c $1,500   ($12,000 ÷ 8)

             To Cash A/c  $12,000           ($300,000 × 8% ÷ 2)

(Being interest expense is recorded)