Chowan Corporation issued 198000 of 8 bonds dated January 1

Chowan Corporation issued $198,000 of 8% bonds dated January 1, 2016, for $191,470.07 on January 1, 2016 The bonds are due December 31, 2019, were issued to yield 9%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization.

Solution

Journal:

Amortisation schedule:

Date	Account		Debit	Credit
Jan.1	2016	Cash		1,91,470.07
		Discount on bonds payable		6,529.93
		Bonds payable			1,98,000.00
		[bonds issued at discount]
Jun.30	2016	Interest expense		8,616.15
		Discount on bonds payable			696.15
		Cash			7,920.00
Dec.31	2016	Interest expense		8,647.48
		Discount on bonds payable			727.48
		Cash			7,920.00
Jun.30	2017	Interest expense		8,680.22
		Discount on bonds payable			760.22
		Cash			7,920.00