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Answered

On January 1, 2021, Splash City issues $500,000 of 9% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.


Assuming the market interest rate on the issue date is 8%, the bonds will issue at $549,482.

Answer :

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The entries to record the bond issue on January 1, 2021 is: Debit Cash $549,482; Credit Discount On bonds Payable $49,482; Credit Bonds Payable $500,000.

Journal entries

Splash city journal entries

January 1, 2021

Debit Cash $549,482

Credit Discount On bonds Payable $49,482

Credit Bonds Payable $500,000

(To record bond issue)

June 30, 2021

Debit Interest Expense  $21,979.28

(8%/2×$549,482)

Debit Discount on Bonds Payable $520.72

($22,500-$21,979.28)

Cash $22,500

(9%/2×$500,000)

(To record semiannual interest payments )

December 31, 2021

Debit Interest Expense  $21,979.28

(8%/2×$549,482)

Debit Discount on Bonds Payable $520.72

($22,500-$21,979.28)

Cash $22,500

(9%/2×$500,000)

(To record semiannual interest payments )

Therefore the entries to record the bond issue on January 1, 2021 is: Debit Cash $549,482; Credit Discount On bonds Payable $49,482; Credit Bonds Payable $500,000.

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