On February 28, 2006, Village Green Departments issues its bonds, 8 1/2 %, 20-year bonds payable with a face value of $500,000. The bonds pay interest pm February 28 and August 31. Village Green amortizes bonds by the straight line methods.

Assume that the issue price of the bonds is 97. Journalize the following bond transactions:
a). Issuance of the binds on February 28, 2006

DR. CASH $485000
CR. Discount on bonds payable $15000
CR. Bonds payable $500,000

b). Payment of interest and amortization of the bonds on August 31, 2006
c). Accrual of interest and amortization of the bonds on December 31, 2006
d). Payment of inteest and amortization of the bonds on February 28, 2007


* I have no idea how to deal with that 97... so that I don't know how to figure out part b, c and d... Please help me... thanks...

97 means you are issuing the bonds at a discount, whereas 100 would be par value. The way I was taught this would be 970 and 1000 but it makes no difference. So you are issuing the bonds at $3 less than there face value. Does that help? Feel free to ask follow up questions.

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Originally Posted by codyman144

97 means you are issuing the bonds at a discount, whereas 100 would be par value. The way I was taught this would be 970 and 1000 but it makes no difference. So you are issuing the bonds at $3 less than there face value. Does that help? Feel free to ask follow up questions.

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So, am I doing right in the first transaction? Also, I don't know the market interest rate. How do I calculate the interest expense for part b,c and d?

DR Interest Expense $ ?
CR Discount on bonds $?
CR Cash $?