Question
;mso-fareast-font-family:Times New Roman; mso-hansi-font-family:Calibri;mso-bidi-font-family:Calibri;color:black; mso-fareast-language:EN-IN'>Accounting Others: Duval Co. issues four-year bonds with a $111,000 par value on January 1, 2019, at a price of $106,880.
Duval Co. issues four-year bonds with a $111,000 par value on January 1, 2019, at a price of $106,880. The annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31. Duval Co. issues four-year bonds with a $111,000 par value on January 1, 2019, at a price of $106,880. The annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31. 2. Prepare journal entries to record the first two interest payments. (Round your answers to the nearest dollar amount.) 1) Record the interest payment and discount amortization on June 30, 2019. 2) Record the interest payment and discount amortization on December 31, 2019.
Sol86:
1. On June 30, 2019:
Interest payment:
The semi-annual interest payment is calculated as: ($111,000 par value x 8% annual rate x 6/12) = $4,440
Debit Interest Expense: $4,440 Credit Cash: $4,440
Discount amortization:
The discount is the difference between the par value and the issue price: $111,000 - $106,880 = $4,120
The discount amortized each period is calculated as: ($4,120 total discount / 8 periods) = $515
Debit Interest Expense: $515 Credit Discount on Bonds Payable: $515
2. On December 31, 2019:
Interest payment:
The semi-annual interest payment is calculated as: ($111,000 par value x 8% annual rate x 6/12) = $4,440
Debit Interest Expense: $4,440 Credit Cash: $4,440
Discount amortization:
The remaining discount to be amortized at the end of the first year is: ($515 discount amortized on June 30 + $515 discount amortized on December 31) = $1,030
Debit Interest Expense: $515 Debit Discount on Bonds Payable: $515 Credit Discount on Bonds Payable: $1,030
Note: The credit to Discount on Bonds Payable represents the total discount amortized to date.
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