Glaser Corporation issued $500,000 of 10-year, 8% bonds at 98 on January 1, 2000. Interest is payable on January 1 and July 1. Glaser Corporation uses the straight-line method of amortization. This assignment requires you to record the purchase of the bonds and the interest payments for 2000 and 2001.
Transactions for 2000
Jan. 1 Issued $500,000 of 10-year, 8% bonds at 98. Interest is paid on January 1 and July 1.
Jul. 1 Recorded the interest payment.
Dec. 31 Recorded the accrued interest on the bonds
Transactions for 2001
Jan. 1 Recorded the interest payment.
Jul. 1 Recorded the interest payment.
Dec. 31 Recorded the accrued interest on the bonds.
Journal Entries for 2000
| DATE | ACCOUNT | DEBIT | CREDIT |
| 2000 | |||
| Jan. 1 | Cash
Discount on Bonds Payable Bonds Payable |
490,000
10,000 |
500,000 |
| Jul. 1 | Interest Expense
Cash Discount on Bonds Payable |
20,500
|
20,000 500 |
| Dec. 31 | Interest Expense
Interest Payable Discount on Bonds Payable |
20,500
|
20,000 500 |
Semi-annual interest payment = $500,000 x 0.08 x 0.5 = $20,000
The total discount of $10,000 is amortized over 10 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $10,000/20 = $500
Journal Entries for 2001
| DATE | ACCOUNT | DEBIT | CREDIT |
| 2001 | |||
| Jan. 1 | Interest Payable
Cash |
20,000 |
20,000 |
| Jul. 1 | Interest Expense
Cash Discount on Bonds Payable |
20,500
|
20,000 500 |
| Dec. 31 | Interest Expense
Interest Payable Discount on Bonds Payable |
20,500
|
20,000 500 |
