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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 4PEA
Textbook Problem
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Using the bond from Practice Exercise 14-3A, journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar.

To determine

Prepare journal entry to record first interest payment and amortization of discount on bonds.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value.

Prepare journal entry for first interest payment and amortization of discount on bonds.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
Interest Expense (3) 60,940
 Discount on Bonds Payable  (1) 10,940
Cash (2)50,000
    (To record semiannual payment of interest and amortization of discount on bonds)   

Table (1)

  • Interest expense is an expense and it decreases the equity value. So, debit it by $60,940.
  • Discount on Bonds Payable is an adjunct liability account and it is increased. So, credit it by $10,940.
  • Cash is an asset and it is decreased. So, credit it by $50,000.

Working notes:

(1)

Calculate discount on bonds payable semiannually...

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Chapter 14 Solutions

Financial Accounting
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