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    studentjane's Avatar
    studentjane Posts: 1, Reputation: 1
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    #1

    Dec 14, 2010, 12:33 PM
    Here's an accounting problem that I need help with:
    At the beginning of the fiscal year, a company issued $500,000 of 10 year, 8% bonds. Interest is paid semi-annually. The effective interest rate at the date of issue was 7% resulting in the company receiving cash of $508,000.
    a) what would the entry be to record the sale of the bonds?
    I think it is : dr Cash for $ 508,000
    Cr Discount on bonds payable for $ 8,000
    Cr Bonds Payable for $500,000

    b) Prepare the semiannual entry to record the first interest payment and amortization of any bond premium or discount using the straight line method.
    Just Looking's Avatar
    Just Looking Posts: 1,610, Reputation: 480
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    #2

    Dec 14, 2010, 12:42 PM

    a) Your credit should be to Premium on Bonds Payable. If you had sold them at a discount (say you only received $495,000) you would have debited Discount on Bonds Payable.
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