On March 1, 2020, VRC Company issues a bond with a face value of $1,900,000.
The bond is a 10-year 5% bond. The market rate of interest is 7%.
Because the market rate is higher than the bond rate, the bonds issue at a discount. The bond quote is: 85.79.
The bonds pay interest semiannually. Interest dates are March 1 and September 1. The company's fiscal year end is December 31.
The company's accountant uses the information above and produces the following effective interest table.
Required:
A
B
C
D
E
Semi-annual Interest
Interest
Discount
Discount
Bond
interest Payment Expense Amortization Account ($ -D)
Period
(B-A)
Balance Discount)
(D-C)
01-Mar-20
270,036 1,629,964
01-Sep-20 47,500 57,049
9,549
260,487 1,639,513
01-Mar-21 47,500 57,383
9,883
250,604 1,649,396
01-Sep-21 47,500 57,729
10,229
240,375 1,659,625
a.) Record the journal entry for the issuance of the bond. (March 1, 2020)
b.) Record the journal entry for the first interest payment. (September 1, 2020)
c.) Record the year-end adjusting journal entry. (December 31, 2020)
d.) Record the journal entry for the second interest payment. (March 1, 2021)