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Paulson Company issues 6%, four-year bonds, on December 31, 2018, with a par value of $200,000 and semiannual interest payments. Semiannual Period-End Unamortized Discount Carrying Value (0) 12/31/2015 $ 13,466 $ 186,534 (1) 6/30/2019 11,782 188,218 (2) 12/31/2019 10,098 189,902 Use the above straight-line bond amortization table and prepare journal entries for the following.
(a) The issuance of bonds on December 31, 2018.
(b) The first interest payment on June 30, 2019.
(c) The second interest payment on December 31, 2019.

Answer :

Answer:

Explanation:

Date 31 Dec 2018

General journal:

Debit Cash                                       186534

Debit Discounts on bonds payable 13466

       Credit Bonds payable                          200000

Date June 30 2019

Debit Interest expense (6000+1684) 7684

        Credit Cash 6000

        Credit Discounts on bonds payable (13466-11782) 1684

Cash paid = Par value of bonds * interest rate * 6months/12months = 200000*0.06*6/12=6000

Date Dec 31 2019

Debit Interest expense 7684

          Credit Cash 6000

          Credit Discounts on bonds payable (13466-11782) 1684
  • The journal entries are shown below:

(a)

On 31 Dec 2018

Cash $186,534

Discounts on bonds payable $13,466

     To Bonds payable $200,000

(Being issuance of the bond is recorded)

(b)

On June 30 2019

Interest expense ($6,000 + $1,684) $7,684

     Cash $6,000

     Discounts on bonds payable ($13,466 - $11,782) $1,684

(Being first interest payment is recorded)

Note:

Cash paid = Par value of bonds × interest rate × 6months ÷ 12months

= $200,000 × 0.06 × 6 ÷ 12

= $6,000

(c)

On  Dec 31 2019

Interest expense $7,684

        Cash $6,000

        Discounts on bonds payable ($13,466 - $11,782) $1,684

(Being second interest payment is recorded)

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