Prepare the journal entry for December 31, 2020 and 2021.

Question

Crafty Corporation issued $475,000 of 5%, 7-year bonds on January 1, 2020, for $448,484. Interest is paid annually on December 31. The market rate of interest is 6%.

Prepare the journal entry for December 31, 2020 and 2021. If required, round your answers to the nearest whole dollar.

Answer 1

Journal Entries - Crafty Corporation

Date                    Particulars                                         Debit                                   Credit

31-Dec-20           Interest expense Dr ($448,484*6%)$26,909.00    

                                                             Cash                                                                    $23,750.00

                                                             Discount on bond payable                           $3,159.00

(To record interest expense and discount amortization)                 

31-Dec-21           Interest expense Dr [($448,484 + $3,159)*6%]    $27,099.00          

                                             Cash                                                                                                    $23,750.00

                                             Discount on bond payable                                                          $3,349.00

(To record interest expense and discount amortization)