Question

On January 1, 2017, Scotts Company issued bonds with a face value of $800,000. The bonds have a 7% contract rate. The fiscal year end is December 31.

INSTRUCTIONS:

a. Assuming the bonds are issued at 95 and interest is paid annually on January 1, prepare journal entries to record the (a) issuance of the bonds, (b) accrual of interest on the bonds and amortization on December 31, 2017, and (c) payment of interest on January 1, 2018.

b. Assuming the bonds are issued at 105 and interest is paid semi-annually on December 31, prepare journal entries to record the (a) issuance of the bonds, (b) payment of interest on the bonds and amortization.