Question

On December 31, 2019, Wintergreen, Inc., issued $150,000 of 7 percent, 10-year bonds at a price of 93.25. Wintergreen received $139,875 when it issued the bonds (or $150,000 × .9325). After recording the related entry, Bonds Payable had a balance of $150,000 and Discounts on Bonds Payable had a balance of $10,125. Wintergreen uses the straight-line bond amortization method. The first semiannual interest payment was made on June 30, 2020. Complete the necessary journal entry for June 30, 2020 by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns. Score answer Visit question mapQuestion 2 linked to 3 of 9 Total2 3 of 9 Prev

Answer 1

Answer:

June 30, 2020   Bond Interest expense      Debit        $5,756.25

                                     Discount on Bonds payable    Credit      $506.25

                                     Cash                                          Credit      $5,250

Explanation:

We have to calculate the interest expense. The bond interest expense = Cash payment + bond amortization discount

Given,

Bond price = $150,000

Interest = 7%

Number of period, n = 10 years × 2 (As it is a semiannual bond) = 20

Cash payment for semiannual interest = $150,000 × 0.07 × (1÷2)

Cash payment for semiannual interest = $5,250 (Credit)

Amortized bond discount (discount on bonds payable) = $10,125 ÷ 20 (as it is a semiannual payment and $10,125 is for 10 years)

Discount on bonds payable = $506.25 (Credit)

Therefore, bond interest expense = $5,250 + $506.25 = $5,756.25 (Debit)

Answer 2

The interest expenses are the expense acquired by an entity for obtained funds. The interest expenses can be calculated by:

$\text{Bond interest expense} & = \text{Cash payment + Bond amortization discount}$

The debit amount is $ 5756.25

It can be calculated by:

• Price of the bond = $150,000

• Interest Rate = 7%

 

• Period Time (n) = $10 \; \text{years} \times 2 \; (\text{Semiannual bond}) & = 20$

Cash amount for half-yearly interest = $\ 150,000 \times 0.07 \times\dfrac{1}{2}$

 

Cash amount for half-yearly interest (Credit) = $5,250

Amortized bond reduction (discount on payable bonds):

=  $\dfrac{\ \; 10,125}{20}$

Discount on payable bonds (Credit) = $506.25

See the attached image below for the entry sheet.

Therefore, bond interest expense will be:

$= \ 5,250 + \ 506.25 = \ 5,756.25 \;\text{(Debit)}$

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