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17 March, 17:51

The Ayayai Company issued $260,000 of 10% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds were issued at 98. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Ayayai Company records straight-line amortization semiannually

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  1. 17 March, 18:07
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    Journal entries on January 1:

    Dr Cash $254,800

    Dr Discount on bonds payable$5200

    Cr Bonds payable $260,000

    July 1:

    Dr Interest expense $13,520

    Cr cash $13,000

    Cr Discount on bonds payable $520

    December 31:

    Dr Interest expense $13,520

    Cr cash $13,000

    Cr Discount on bonds payable $520

    Explanation:

    The proceeds of issue = $260,000*98%=$254,800

    Discount on bonds payable=Par value-cash proceeds

    par value is $260,000

    Discount on bonds payable=$260,000-$254,800=$5200

    The discount amortization on semi-annual basis=$5200 / 5*6/12=$520

    Semi-annual interest on the bond = $260,000*10%*6/12=$13,000.00
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