CAROLJESTERKIL
Nov 7, 2009, 08:46 PM
On July 1, 2010, a company issued 32,000,000 of 10 year 12% bond at an effective interest rate of 13%, receiving cash of 30,237,139. Interest on the bond is payable semiannually on Dec 31 and June 30th. The fiscal year is the calendar year.

What I need to do is 1. Journalize for entry to record the amount of cash proceeds from the sale of the bonds.

1. Solution: cash debit-\$30,237,139 discount on bonds payable 1,762,861 debit, 32,000,000 credit.

Next I needed to journal the first semiannual interest payment on Dec 31, 2010 and the amortization of the bond discount, using the straight-line method I got Interest expense \$2,008,143 debit, \$88,143 for discount bonds payable credit and \$1,920,000 cash credit

Now I need to journal the interest payment for June 30, 2011 and the amortization on the bond discount using the straight-line method Do I journal the information that I came up with on Dec 31, 2010 or do I use 19 periods instead of 20 year period (10*2)

morgaine300
Nov 10, 2009, 11:40 PM
Everything you've done is fine and since it's straight-line, that entry for the interest/amortization will remain exactly the same throughout the life of the bonds. You CAN divide the discount that's left by 19, but there's no point. Since you've taken 1/20th off, then 1/19th of the leftovers is the same number -- it's the same for all 20 periods.