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YR1 Bond Discount JE
user-21492 - 11/6/2019, 1:49 pm

Whats the Journal Entry for Year ONE??

Dr Interest Exp $7360
Cr Cash $7000
Cr ????? $360

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verified_user RobPremCPA (Instructor) - 11/13/2019, 4:45 pm

Good question.

We know the Discount on Note Payable is $8,000, but we aren't told how to amortize the discount - which would be either straight-line amortization or amortize via the effective interest rate method. If we are told the straight-line method, we would have to be told the term of the bond.

If we are told to use the effective interest method, then we would have the following:

Dr. interest expense 7,360
Cr. Discount on N/P 360
Cr. Cash 7,000 (face value x coupon %)

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