The discount on a bond payable becomes a reduction in interest expense over the life of the bonds. True or False?
The discount on a bond payable becomes a reduction in interest expense over the life of the bonds. True or False?
Related questions
Bonds Payable Journal Entries; Effective Interest Amortization
On December 31, 2009, Blair Company issued $800,000 of 20-year, 11% bonds payable for $754,784, yielding an effective interest rate of 12%. Interest is payable semiannually on June 30 and December 31. Prepare journal entries to reflect (a) the issuance of the bonds, (b) the semiannual interest payment and discount amortization (effective interest method) on June 30, 2010, and (c) the semiannual interest payment and discount amortization on December 31, 2010. Round amounts to the nearest dollar.
| General Journal | |||
|---|---|---|---|
| Date | Description | Debit | Credit |
| a.) | |||
| Dec.31 | Cash | $Answer | $Answer |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer | |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer | |
| To record issuance of bonds. | |||
| b. | |||
| Jun.30 | Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense. | Answer | Answer |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense. | Answer | Answer | |
| Cash | Answer | Answer | |
| To record semiannual interest payment and | |||
| c.) | |||
| Dec.31 | Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer |
| Answer: Cash, Discount on Bonds Payable, Bonds Payable, Bond Interest Expense | Answer | Answer | |
| Cash | Answer | Answer | |
| To record semiannual interest payment. | | ||
On the first day of the fiscal year, a company issues a$800,000, 6%, 5 year bond that pays semi-annual interest of $24,000($800,000 x 6% x 1/2), receiving cash of $690,960. Journalize theentry to record the first interest payment and the amortization ofthe related bond discount using the straight-line method.
If an amount box does not require an entry, leave it blank, orenter zero "0".
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