Legacy issues $630,000 of 9.0%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $571,310 when the market rate is 12%. Required:
a. Prepare the January 1, 2018, journal entry to record the bonds' issuance.
b. Prepare the journal entries to record the first two interest payments.

Solution :

a). Prepare the journal entry to record the bonds' issuance as shown below:

Interest paid =

                      = $ 28,350

   Date           Accounts titles and explanation             Debit ($)       Credit($)

1 Jan 2018      Cash                                                         571,310

                       Discount on bonds payable                    58,690

                        ($ 630,000 - $ 571,130)

                      Bonds payable                                                              630,000

b). Preparing the journal entries to record the first two interest payments :

        Date      Accounts Titles and explanation     Debit($)        Credit($)

 30/6/2018   Interest expense                              35,686.25

                      Discount on bonds payable                                  7,336.25

                      Cash                                                                        28,350

31/12/2018     Interest expense                            35,686.25

                      Discount on bonds payable                                     7,336.25

                       Cash                                                                           28,350                          

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