Question

Simko Company issued $700,000, 10-year, 4 percent bonds on January 1, 2018. The bonds were issued for $630,000. Interest is payable annually on December 31. Using straight-line amortization, prepare journal entries to record
(a) the bond issuance on January 1, 2018, and
(b) the payment of interest on December 31, 2018.

Answer 1

Answer:

A) the bond issuance on January 1, 2018

Dr Cash account 630,000

Dr Discount on Bonds Payable account 70,000 (amortized over 10 years, i.e. 7,000 each year)

Cr Bonds Payable account 700,000

B) the payment of interest on December 31, 2018

Dr Interest expense 28,000  (= $700,000 x 4%)

Cr Cash account 28,000

Cr Discount on Bonds Payable account 7,000