Discount on Bonds Payable = ($200,000 – $177,060)/20 = $1,147 — January the company issued 10-year with face value carry coupon rate and

On January 1, the company issued 10-year bonds with a face value of $200,000. The bonds carry a coupon rate of 10%, and interest is paid semiannually. On the issue date, the market interest rate for bonds issued by companies with similar risk was 12% compounded semiannually. The issuance price of the bonds was $177,060. Make the journal entries needed on the books of the issuer to record the first two interest payments on June 30 and December 31. Use straight-line amortization of the bond discount.

SOLUTION

June 30

Interest Expense 11,147

Discount on Bonds Payable 1,147