How do you record the issuance of bonds?

Bond Issuance and Amortization Entries On January 1 2009 a corporation issued $ 100,000 of 9 % ten year bonds?

• Bond Issuance and Amortization Entries On January 1 2009 a corporation issued $ 100,000 of 9 % ten year bonds. Interest is payable each Jan 1 and July 1. Record the following transactions in the general form. 1) The issuance of the bonds at 94 on January 1. DATE ACCOUNT TITLE PR DEBIT CREDIT 2) Record the Semi-Annual Payment of Interest to bondholders on July 1. 3) Record the Semi-Annual Amortization of the Discount for July 1 using the Straight Line Method. 7/1/2011 4) What is the Corporations Total Bond Interest Expense as of July 1? _______________ 5) As the years pass and we move towards the maturity date of the bond the balance in the Discount on Bond Payable account will? Increase, Decrease or Remain the Same ______________ The balance of the Discount on Bond Payable account on the Maturity Date will be? _____________

• Answer:

  1) 94% x 100,000 = $94,000 cash received 100,000 - 94,000 = $6,000 discount Dr Cash 94,000 Dr Discount on Bonds Payable 6,000 Cr Bonds Payable 100,000 2) 100,000 x 4.5% = $4,500 Dr Interest Expense 4,500 Cr Cash 4,500 3) 6,000 / 20 = $300 discount amortization Dr Interest Expense 300 Cr Discount on Bonds Payable 300 4) 4,500 + 300 = $4,800 5) As the years pass and we move towards the maturity date of the bond the balance in the Discount on Bond Payable account will? Increase, Decrease or Remain the Same DECREASE. The balance of the Discount on Bond Payable account on the Maturity Date will be? 0