Answer:
Date Interest Interest Amortization Bond's
payment expense bond discount book value
Jan. 1, 2018 457,102
June 30, 2018 22,500 23,572.45 1,072.45 458,174.45
Dec. 31, 2018 22,500 23,572.45 1,072.45 459,246.90
Assuming you are using a straight line amortization of bond discount, then the amortization per coupon payment = $42,898 / 40 = $1,072.45
January 1, 2018, bonds are issued
Dr Cash 457,102
Dr Discount on bonds payable 42,898
Cr Bonds payable 500,000
June 30, 2021, first coupon payment
Dr Interest expense 23,572.45
Cr Cash 22,500
Cr Discount on bonds payable 1,072.45
December 31, 2021, second coupon payment
Dr Interest expense 23,572.45
Cr Cash 22,500
Cr Discount on bonds payable 1,072.45
If the company uses the effective interest method, the numbers vary a little:
amortization of bond discount on first coupon payment:
($457,102 x 5%) - ($500,000 x 4.5%) = $22,855.10 - $22,500 = $355.10
Journal entry to record first coupon payment:
Dr Interest expense 22,855.10
Cr Cash 22,500
Cr Discount on bonds payable 355.10
amortization of bond discount on second coupon payment:
($458,174.45 x 5%) - ($400,000 x 4.5%) = $22,908.72 - $22,500 = $408.72
Journal entry to record second coupon payment:
Dr Interest expense 22,908.72
Cr Cash 22,500
Cr Discount on bonds payable 408.72
