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On the first day of the current fiscal year, $1,500,000 of 10-year, 8% bonds, with interest payable semiannually, were sold for $1,225,000. Present entries to record the following transactions for the current fiscal year: a. Issuance of the bonds. If an amount box does not require an entry, leave it blank. b. First semiannual interest payment (record as separate entry from discount amortization). If an amount box does not require an entry, leave it blank. c. Amortization of bond discount for the year, using the straight-line method of amortization. If an amount box does not require an entry, leave it blank.

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Answer:

For options (a), (b), (c), An entry was recorded for the following transactions for the current fiscal year, below in the explanation section

Explanation:

Solution

         Account titles and explanation          Debit            Credit

(a)                Cash                                          $1,225,000

           Discount on issue of bonds $            275,000

               Bonds payable                                                   $ 1,500,000

            (To record issue of bonds)

(b)    Interest expense ($1,500,000*8%*1/2)    $ 60,000

                 Cash                                                                  $ 60,000

           (To record interest payment)

(c)   Interest expense ($275,000/20 periods)   $ 13,750

         Discount on issue of bonds $                                   13,750

 (To record amortization of discount over 20 semi-annual periods)