Answered Essay: Chowan Corporation issued $132,000 of 8% bonds dated January 1, 2016, for $127,646.72 on January 1, 2016. The bon

Chowan Corporation issued $132,000 of 8% bonds dated January 1, 2016, for $127,646.72 on January 1, 2016. The bonds are due December 31, 2019, were issued to yield 9%, and pay interest semiannually on June 30 and December 31. Chowan uses the effective interest method of amortization. Required: Prepare the journal entries to record the issue of the bonds on January 1, 2016, and the interest payments on June 30, 2016, December 31, 2016, and June 30, 2017. In addition, prepare a bond interest expense and discount amortization schedule for the bonds through June 30, 2017.

Expert Answer

 

Jan-1-16 Cash 127646.72
Discount on Bonds Payable 4353.28
           Bonds Payable 132000
Discount Amortization Schedule (Partial)
Date Cash interest Interest expense Discount amortized Book value
01-01-2016 127646.72
6/30/2016 5280 5744.10 464.10 128110.82
12/31/2016 5280 5764.99 484.99 128595.81
6/30/2017 5280 5786.81 506.81 129102.62
June-30-16 Interest expense 5744.10
      Discount on Bonds Payable 464.10
       Cash 5280.00
Dec-31-16 Interest expense 5764.99
      Discount on Bonds Payable 484.99
       Cash 5280.00
June-30-17 Interest expense 5786.81
      Discount on Bonds Payable 506.81
       Cash 5280.00
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