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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 | |||
