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On the first day of the fiscal year, a company issues a $8,800,000, 7%, 10-year bond that pays semiannual interest of $308,000 ($8,800,000 × 7% × ½), receiving cash of $7,655,303. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. If an amount box does not require an entry, leave it blank.

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jepessoa

Answer:

The journal entry to record the issuance of the bonds:

Dr January 1, 202x, bonds are issued at a discount

Dr Cash 7,655,303

Dr Discount on bonds payable 1,144,697

    Cr Bonds payable 8,800,000

using straight line amortization:

$1,144,697 / 20 coupons = $57,234.85 per coupon

July 1, 202x, first coupon payment

Dr Interest expense 365,234.85

    Cr Cash 308,000

    Cr Discount on bonds payable 57,234.85