The journal entry used to record the interest payment on December 31,Year 2 would be:

Question

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Issue price = Face value of $70,500 × 97% = $68,385
Discount = Face value of $70,500 - Issue price of $68,385 = $2,115
Annual amortization of discount = $2,115 ÷ 5 years = $423
Cash interest payment = Face value of $70,500 × 8% = $5,640
Interest expense = Cash payment of $5,640 + Amortization of discount of $423 = $6,063
The interest payment would be recorded as a debit (increase)to interest expense for $6,063,a credit (decrease)to discount on bonds payable,a contra-liability account,for amortization amount of $423,and a credit (decrease)to cash for the cash payment $5,640.

The Journal Entry Used to Record the Interest Payment on December