On January 1 the first day of the fiscal year a company issu

On January 1, the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of $54,000 ($1,200,000 × 9% × ½), receiving cash of $1,153,670. Journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles.

JOURNAL IS ONLY 3 LINES

Solution

Total Discount on bond ( 1200000 -1153670) 46330 Discount per annum ( 46330 / 5) 9266 Discount semiannually 4633 Interest semiannually 54000 hence interest to be expensed( 54000 + 4633) 58633 Journal entry for the 1st interest payment - straight line amortization Interest expense Dr 58633                    Discount on bonds payable Cr 4633                    Cash Cr 54000