Splash City will record the following journal entries:
January 1, 2021
Debit Cash $307,577
Debit Bonds Discounts $22,423
Credit Bonds Payable $330,000
- To record the bond issuance and discounts.
June 30, 2021
Debit Interest Expense $12,303
Credit Discounts Amortization $753
Credit Cash $11,550
- To record the first semiannual interest payment and discount amortization.
December 31, 2021
Debit Interest Expense $12,333
Credit Discounts Amortization $783
Credit Cash $11,550
- To record the second semiannual interest payment and discount amortization.
Data and Calculations:
Bonds' Face Value = $330,000
Bonds' Proceeds = $307,577
Bonds Discounts = $22,423 ($330,000 - $307,577)
Maturity Period = 10 years
Coupon interest rate = 7%
Market interest rate = 8%
Interest Payment = Semiannually on June 30 and December 31
June 30, 2021:
Cash Payment = $11,550 ($330,000 x 7% x 1/2)
Interest Expense = $12,303 ($307,577 x 8% x 1/2)
Discounts Amortization = $753 ($12,303 - $11,550)
Carrying value = $30,833 ($307,577 + $753)
December 31, 2021:
Cash Payment = $11,550 ($330,000 x 7% x 1/2)
Interest Expense = $12,333 ($308,330 x 8% x 1/2)
Discounts Amortization = $783 ($12,333 - $11,550)
Carrying value = $309,113 ($308,330 + $783)
Transaction Analysis:
January 1, 2021 Cash $307,577 Bonds Discounts $22,423 Bonds Payable $330,000
June 30, 2021 Interest Expense $12,303 Discounts Amortization $753 Cash $11,550
December 31, 2021 Interest Expense $12,333 Discounts Amortization $783 Cash $11,550
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