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Journal Entries for Sale of Bonds and payment of Interest

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Simon issues four-year bonds with a $50,000 par value on June 1, 2011, at a price of $47,974. The annual contract rate is 7%, and interest is paid semiannually on November 30 and May 31.

1. Prepare journal entries to record the first two interest payments and to accrue interest as of December 31, 2011.

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Solution Summary

Preparation of journal entries for Bond sale and interest payment.

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Journal Entry to Record Bond interest and Amortization of Bond Discount

Using Straight-line amortization of Discount

Calculations:

1. Annual Discount to be Amortized = Total Discount/no of years = ($50,000 - 47,974)/4 =$506.50 per year
2. Semi-annual discount amortization = $506.50/2 = $253.25
3. Annual Interest payment = $50,000 x 7% = $3,500
4. Semi-Annual Interest = 3,500/2 = $1,750

Journal Entries

Nov 30 ...

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