Plymouth Corporation issued $200,000 of 9%, five-year bonds at 99 on January 1, 2000. Interest is paid semi-annually on January 1 and July 1. Plymouth Corporation uses the straight-line method of amortization. This assignment requires you to record transactions related to the issue of bonds and subsequent interest payments in the general journal.
Transactions for 2000
Jan. 1 Issued $200,000 of 5-year, 9% bonds at 99. 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
| Transaction number | DATE | ACCOUNT | DEBIT | CREDIT |
| 2000 | ||||
| 1 | Jan. 1 | Cash
Discount on Bonds Payable Bonds Payable |
198,000
2,000
|
200,000 |
| 2 | Jul. 1 | Interest Expense
Cash Discount on Bonds Payable |
9,200
|
9,000 200 |
| 3 | Dec. 31 | Interest Expense
Interest Payable Discount on Bonds Payable |
9,200
|
9,000 200 |
Semi-annual interest payment = $200,000 x 0.09 x 0.5 = $9,000
The total discount of $2,000 is amortized over 5 years. Since interest is paid twice a year, the amount of discount amortized at the time of each interest payment = $2,000 /10= $200
Journal Entries for 2001
| Transaction number | DATE | ACCOUNT | DEBIT | CREDIT |
| 2001 | ||||
| 1 | Jan. 1 | Interest Payable
Cash |
9,000 |
9,000 |
| 2 | Jul. 1 | Interest Expense
Cash Discount on Bonds Payable |
9,200
|
9,000 200 |
| 3 | Dec. 31 | Interest Expense
Interest Payable Discount on Bonds Payable |
9,200
|
9,000 200 |
