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    Discount on Bonds Payable and Interest Expenses

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    Since the club opened, a major concern has been the pool facilities. Although the existing pool is adequate, Mindy, Oscar, and Lori all desire to make LifePath a cutting-edge facility. Until the end of 2008, financing concerns prevented this improvement. However, because there has been steady growth in clientele, revenue, and income since the fourth quarter of 2008, the owners have explored possible financing options. They are hesitant to issue stock and change the ownership mix because they have been able to work together as a team with great effectiveness. They have formulated a plan to issue secured term bonds to raise the needed $600,000 for the pool facilities. By the end of April 2009 everything was in place for the bond issue to go ahead. On June 1, 2009, the bonds were issued for $548,000. The bonds pay semiannual interest of 3% (6% annual) on December 1 and June 1 of each year. The bonds mature in 10 years, and amortization is computed using the straight-line method. Record the issuance of the secured bonds, the interest payment made on December 1, 2009, the adjusting entry required at December 31, 2009, and the interest payment made on June 1, 2010.
    (List multiple entries in order of magnitude.)
    General Journal
    Date Description Debit Credit
    6/1/09 Cash 548,000
    Discount on bonds payable 52,000
    Bonds payable 600,000

    12/1/09 Interest expense 20,600
    Cash 18,000
    Discount on bonds payable 2,600

    12/31/09 Interest expense
    Interest payable
    Discount on bonds payable


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    Solution Summary

    Discount on bonds payable and interest expenses are examined.