Answer:
Journal Entry
June 30, 2020
Dr. Interest expense __$3,564.75
Cr. Discount on bonds_$64.75
Cr. Cash ___________$3,500
[To record interest]
Explanation:
First, we need to calculate the issuance price of the bond
Issuance price of the bond = Face value x Seling rate = $70,000 x 97/100 = $67,900
Now we need to calculate the discount value as follow
Discount = Face value - Isuance vaue = $70,000 - $67,900 = $2,100
Now, need to calculate the discount amortization as follow
Discount amortization = ( Carrying value of bond x Effective interest rate x 6/12 ) - ( Face value x Coupon rate x 6/12 ) = ( $67,900 x 10.5%x 6/12 ) - ( $70,000 x 10% x 6/12 = $3,564.75 - $3,500 = $64.75
Now calculate the interest payment
Interst payment = Face value x Coupon rate x 6/12 = $70,000 x 10% x 6/12 = $3,500
The bonds would expire on the date of maturity, and the issuing company will pay the debt holder the face value of the bond.
The issue price is termed as the price at which the issuer of the bond sells the bonds for the first time.
The Journal entry has been attached below.
The calculation of the issuance price of the bond:
Issuance price of the bond = [tex]\text{Face value} \times \text{Seling rate} = \$70,000 \times \frac{97}{100}[/tex] = $67,900
Calculation of the discount value:
Discount = Face value - Isuance vaue = $70,000 - $67,900 = $2,100
Calculation of the discount amortization:
Discount amortization = [tex]( \text{Carrying value of bond} \times \text{Effective interest rate} \itimes \frac{6}{12} ) - ( \text{Face value} \times \text{Coupon rate} \times \frac{6}{12})[/tex]
= [tex]( \$67,900 \times 10.5\%\times \frac{6}{12}) - ( \$70,000 \times 10\% \times \frac{6}{12})[/tex]
= $3,564.75 - $3,500 = $64.75
Calculation of the interest payment:
Interst payment =[tex]\text{ Face value} \times \text{Coupon rate} \times \frac{6}{12} = \$70,000 \times 10\% \times \frac{6}{12}[/tex]= $3,500
To know more about the calculation of the interest payment, refer to the link below:
https://brainly.com/question/9256832
