| Journal Entry Work Sheet -2016 | |||
| Number | Description | Debit $ | Credit $ |
| Jan. 1 | Cash | 294000 | |
| Discount on Bonds Payable | 6000 | ||
| Bonds Payable | 300000 | ||
| (,Jan. 1 Issued $300,000 of 10-year, 6 percent bonds for $294,000. The annual cash payment for interest is due on December 31) |
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| Dec. 31 | Interest Expense | 18600 | |
| Cash | 18000 | ||
| Discount on Bonds Payable | 600 | ||
| (Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest) |
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annual interest payment
= $300,000 x 0.06
= $9,000
The total discount of $6,000 is amortized over 10 years.
Since interest is paid once a year, the amount of discount amortized at the time of each interest payment = $6,000 /10
= $600
