On January 1, 2005, Larkspur Corporation issued $500,000, 10%, 5-year bonds, at 98. The bonds pay semiannual interest on January 1 and July 1. The company uses the straight-line method of amortization and has a calendar year end.
Prepare all the journal entries that Larkspur Corporation would make related to this bond issue through January 1, 2006. Be sure to indicate the date on which the entries would be made.
The amount raised is 500,000X.98 = 490,000. The discount on bonds payable is 10,000. The total periods are 10 and so the amortization using straight line is 10,000/10=1,000 per period.
Journal entry at the time of issue is
Jan 1 2005 Cash Dr ...
The solution explains the journal entries relating to bond issue.