Paulson Company issues 6%, four-year bonds, on January 1 of this year, with a par value of $100,000 and semiannual interest payments. Semiannual Period-EndUnamortized DiscountCarrying Value(0)January 1, issuance$ 6,733$ 93,267(1)June 30, first payment5,89194,109(2)December 31, second payment5,04994,951Use the above straight-line bond amortization table and prepare journal entries for the following.(a) The issuance of bonds on January 1.(b) The first interest payment on June 30.(c) The second interest payment on December 31.

Let's go through the journal entries for each event described using the provided straight-line bond amortization table. The Paulson Company issues a bond at a discount, and we will record the issuance, the first interest payment, and the second interest payment based on the semiannual amortization of the bond discount.

### (a) **Issuance of bonds on January 1:**

The bond has a par value of $100,000 but is issued at a discount of $6,733, meaning the cash received is the par value minus the discount. The journal entry will record the cash received, the discount on bonds payable, and the liability for bonds payable at par value.

**Journal Entry on January 1:**
- **Debit**: Cash $93,267 (par value - discount)
- **Debit**: Discount on Bonds Payable $6,733 (the bond discount)
- **Credit**: Bonds Payable $100,000 (the par value of the bond)

### (b) **First interest payment on June 30:**

The company pays semiannual interest on the bonds. The bond's stated rate is 6% per year, so the semiannual interest rate is 3%. The bond’s interest payment is based on the par value, not the carrying value. The semiannual interest payment is $ 100,000 \times 3\% = 3,000 $. Additionally, there is amortization of the discount, which is the difference between the unamortized discounts from January 1 and June 30, i.e., $ 6,733 - 5,891 = 842 $. This amount reduces the discount and increases the carrying value.

**Journal Entry on June 30:**
- **Debit**: Interest Expense $3,842 (3,000 interest + 842 discount amortization)
- **Credit**: Discount on Bonds Payable $842 (amortization of the discount)
- **Credit**: Cash $3,000 (the interest payment to bondholders)

### (c) **Second interest payment on December 31:**

For the second payment, the company again pays $3,000 in cash for interest and amortizes the discount by $ 5,891 - 5,049 = 842 $ (same as before).

**Journal Entry on December 31:**
- **Debit**: Interest Expense $3,842 (3,000 interest + 842 discount amortization)
- **Credit**: Discount on Bonds Payable $842 (amortization of the discount)
- **Credit**: Cash $3,000 (the interest payment to bondholders)

### Summary of journal entries:
1. **January 1**:
   - Cash $93,267
   - Discount on Bonds Payable $6,733
   - Bonds Payable $100,000

2. **June 30**:
   - Interest Expense $3,842
   - Discount on Bonds Payable $842
   - Cash $3,000

3. **December 31**:
   - Interest Expense $3,842
   - Discount on Bonds Payable $842
   - Cash $3,000

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Let me know if you'd like any additional details on these entries! Here are five questions to expand your understanding:

1. How would the journal entries differ if the bonds were issued at a premium?
2. What would happen if the interest payments were made annually instead of semiannually?
3. How is the carrying value of bonds affected over time as the discount is amortized?
4. How is the straight-line method of amortization different from the effective interest method?
5. How does issuing bonds at a discount affect the company’s interest expense over time?

**Tip:** The straight-line amortization method spreads the bond discount evenly over the life of the bond, simplifying accounting for interest expense.

Paulson Company issues 6%, four-year bonds, on January 1 of this year, with a par value of $100,000 and semiannual interest payments. Semiannual Period-End Unamortized Discount Carrying Value (0) January 1, issuance $ 6,733 $ 93,267 (1) June 30, first payment $5,891 $94,109 (2) December 31, second payment $5,049 $94,951. Use the above straight-line bond amortization table and prepare journal entries for the following: (a) The issuance of bonds on January 1. (b) The first interest payment on June 30. (c) The second interest payment on December 31.

Learn how to record journal entries for bond issuance, interest payments, and discount amortization using the straight-line method. This example involves a $100,000 bond issued at a discount with semiannual interest payments. Suitable for college-level finance and accounting students.

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