Question

Alpha Company purchased a $1,000, 5 years, 5% bond on July 1, 2015 for $950. Interest is paid semi-annually on June 30. The straight line method of amortization is used for both premiums & discounts. Use this information to prepare the adjusting General Journal entry (without explanation) for the December 31, 2017. If no entry is required then write "No Entry Required."

Answer 1

Answer:

Cash       25 debit

discount on bonds 5 debit

        interest revenue            30 credit

Explanation:

Notice we are working with the books of the company who purchase the bond

cash proceeds 1,000 x 5%/2 = 25

amortizaion 950 - 1000 = -50 discount

discount/total payment = amortization under straight-line method

5 years at 2 payment per year = 10 payment

50/10 = 5 amortization per payement

Cash proceed + amortization discount = interest revenue

25 + 5 = 30