Duval Company issues four-year bonds with a $109,000 par value on January 1, 2021, at a price of $104,910. The annual contract rate is 5%, and interest is paid semiannually on June 30 and December 31. 2. Prepare journal entries to record the first two interest payments.

Answer 1

To record the first interest payment on June 30, 2021:

June 30, 2021:
Interest Expense 2,180 (($109,000 x 0.05) / 2)
Discount on Bonds Payable 270 (($109,000 - $104,910) / 8)
Cash (Interest Payment) 1,910 (($109,000 x 0.05) / 2 - (($109,000 - $104,910) / 8))

To record the second interest payment on December 31, 2021:

December 31, 2021:
Interest Expense 2,180 (($109,000 x 0.05) / 2)
Discount on Bonds Payable 270 (($109,000 - $104,910) / 8)
Cash (Interest Payment) 1,910 (($109,000 x 0.05) / 2 - (($109,000 - $104,910) / 8))