On February 1 2018 Fox Corporation issued 9 bonds dated Febr

On February 1, 2018, Fox Corporation issued 9% bonds dated February 1, 2018, with a face amount of $240,000. The bonds sold for $219,410 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Fox\'s fiscal year is the calendar year. Fox uses the straight-line method of amortization.

Required:
1. Prepare the journal entry to record the bond issuance on February 1, 2018.
2. Prepare the entry to record interest on July 31, 2018.
3. Prepare the necessary journal entry on December 31, 2018.
4. Prepare the necessary journal entry on January 31, 2019.

Solution

1.the following is the journal entry to record the bond issuance on february 1, 2018.

2. entry to record interest on july 31,2018.

note: discount on bonds payable is amortised on straight line basis,

=>$20,590 / (20 years * 2 semi annual payments)

=>$20,590 / 40 semi annual periods

=>$514.75.

cash paid will be =face value * coupon rate * 1/2

=>$240,000 * 9% * 1/2

=>$10,800.

interest expense will be = cash paid + discount amortised

=>$10,800 + $514.75

=>$11,314.75.

3. journal entry on december 31,2018.

the following is the adjusting entry on december 31,2018.

note:

from july 31 to december 31 we have 5 months.

interest expense will be $11,314.75 / 6 * 5 =>$9,428.96.

discount on bonds payable will be = $514.75/6*5 =>428.96

interest payable will be = $10,800 / 6 *5 =>$9,000.

4. journal entry on january 31.

interest expense will be= $11,314.75 / 6 *1 =>$1,885.79

interest payable as shown in journal entry 3.

discount on bonds payable = $514.75 /6 =>$85.79.

cash = $240,000*9%*1/2 =>$10,800.