1. Record the bond issue on January 1, 2024:

The company issued the bonds at a discount because the coupon rate on the bonds is less than the market interest rate. The journal entry to record this transaction is as follows:

Debit Cash $49,528
Debit Discount on Bonds Payable $6,472 ($56,000 - $49,528)
Credit Bonds Payable $56,000

This entry records the cash received from the bond issuance and establishes the bonds payable liability at its face amount. The difference between the cash received and the face amount of the bonds is recorded as a discount on bonds payable. This discount will be amortized over the life of the bonds.

2. Record the first interest payment on June 30, 2024:

The company pays interest on the bonds semiannually. The amount of interest paid is based on the face amount of the bonds and the coupon rate. The journal entry to record the interest payment is as follows:

Debit Interest Expense $1,400 ($56,000 * 5% * 0.5)
Debit Discount on Bonds Payable $161.18 ($6,472 * 6% * 0.5)
Credit Cash $1,561.18

This entry records the interest expense for the period and reduces the discount on bonds payable by the amount of the discount amortized. The cash paid is the sum of the interest expense and the discount amortized.

Question

1. Record the bond issue on January 1, 2024:

The company issued the bonds at a discount because the coupon rate on the bonds is less than the market interest rate. The journal entry to record this transaction is as follows:

Debit Cash $49,528
Debit Discount on Bonds Payable $6,472 ($56,000 - $49,528)
Credit Bonds Payable $56,000

This entry records the cash received from the bond issuance and establishes the bonds payable liability at its face amount. The difference between the cash received and the face amount of the bonds is recorded as a discount on bonds payable. This discount will be amortized over the life of the bonds.

2. Record the first interest payment on June 30, 2024:

The company pays interest on the bonds semiannually. The amount of interest paid is based on the face amount of the bonds and the coupon rate. The journal entry to record the interest payment is as follows:

Debit Interest Expense $1,400 ($56,000 * 5% * 0.5)
Debit Discount on Bonds Payable $161.18 ($6,472 * 6% * 0.5)
Credit Cash $1,561.18

This entry records the interest expense for the period and reduces the discount on bonds payable by the amount of the discount amortized. The cash paid is the sum of the interest expense and the discount amortized.

Knowee AI · Accepted Answer

1. Record the bond issue on January 1, 2024:

The company issued the bonds at a discount because the coupon rate on the bonds is less than the market interest rate. The journal entry to record this transaction is as follows:

Debit Cash $49,528
Debit Discount on Bonds Payable $6,472 ($56,000 - $49,528)
Credit Bonds Payable $56,000

This entry records the cash received from the bond issuance and establishes the bonds payable liability at its face amount. The difference between the cash received and the face amount of the bonds is recorded as a discount on bonds payable. This discount will be amortized over the life of the bonds.

2. Record the first interest payment on June 30, 2024:

The company pays interest on the bonds semiannually. The amount of interest paid is based on the face amount of the bonds and the coupon rate. The journal entry to record the interest payment is as follows:

Debit Interest Expense $1,400 ($56,000 * 5% * 0.5)
Debit Discount on Bonds Payable $161.18 ($6,472 * 6% * 0.5)
Credit Cash $1,561.18

This entry records the interest expense for the period and reduces the discount on bonds payable by the amount of the discount amortized. The cash paid is the sum of the interest expense and the discount amortized.

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