Question

On January 1, 2017, JWS Corporation issued \(600,000 of 7% bonds, due in 10 years. The bonds were issued for \)559,224, and pay interest each July 1 and January 1. JWS uses the effective-interest method. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Assume an effective-interest rate of 8%

Short answer

The total for both the debit and credit sides is $644,792.68.

Step-by-step solution

Meaning of Coupon Bond

Bonds that pay periodic interest amount to the bondholder atequal frequency is coupon bond. Interest paid on bond at stated coupon rate.

Journal Entries

Date	Accounts and Explanation	Debit	Credit
January 1, 2017	Cash	$559,224
	Discount on bonds payable	$40,776
	Bonds Payable		$600,000
July 1, 2017	Interest expenses (559,224 x 8% x 1/2)	$22,368.96
	Cash		$21,000.00
	Discount on Bonds Payable		$1,368.96
December 31, 2017	Interest expenses	$22,423.72
	Interest Payable		$21,000
	Discount on Bonds Payable		$1,423.72

Working:

Discount on bonds payable on January 1= ($600,000-$559,224) = $40,776

Interest expenses on July 1 = ($559,224 x 8% x 1/12) = $22,368.96

Interest paid in cash paid on July 1= ($600,000 x 7% x 1/2) = $21,000.

Interest expenses on December 31 = {(559,224 +$1,368.96) x 8% x 1/2} = $22,423.72

Interest payable on December 31, 2017 = ($600,000 x 7% x 1/2) = $21,000