Deane Company issues $5 million, 10-year, 9% bonds at 96, with interest payable on July 1 and January 1.The straight-line method is used to amortize bond discount.

Prepare the journal entry to record interest expense and bond discount amortization on July 1, 2008, assuming no previous accrual of interest.

Prepare the journal entry to record interest expense and bond discount amortization on July 1, 2008, assuming no previous accrual of interest

To prepare the journal entry to record interest expense and bond discount amortization on July 1, 2008, we need to understand the information given in the question.

Here are the key details:
- The bond's face value is $5 million.
- The bond's issue price is 96% of the face value, which means it was sold at a discount. The amount of the discount can be calculated as 4% of $5 million, which is $200,000.
- The bond has a 10-year term.
- The bond's stated interest rate is 9% per year, to be paid semi-annually (on July 1 and January 1).

To record the interest expense and bond discount amortization on July 1, 2008, we need to calculate the amounts for the interest expense and the bond discount amortization.

Step 1: Calculate the semi-annual interest expense.
The bond's face value is $5 million, and the stated interest rate is 9%. Since interest is paid semi-annually, we will calculate the interest expense for 6 months. Therefore, the semi-annual interest expense can be calculated as follows:
Semi-annual interest expense = (Face value of the bond) x (Stated interest rate) x (Time period)
= ($5 million) x (9%) x (6/12)
= $225,000

Step 2: Calculate the bond discount amortization.
The bond was sold at a discount of $200,000. Since the bond has a 10-year term, the bond discount will be amortized over the 10-year period. Using the straight-line method, the amortized bond discount will be equal each year.
Bond discount amortization per year = (Bond discount) / (Number of years)
= $200,000 / 10
= $20,000

Now that we have calculated the interest expense and bond discount amortization, we can prepare the journal entry:

Date: July 1, 2008
Account Debit($) Credit ($)
----------------------------------------------
Interest Expense 225,000
Discount on Bonds Payable 20,000
Cash 205,000

In this journal entry, we debit Interest Expense for $225,000 (the semi-annual interest expense), credit Discount on Bonds Payable for $20,000 (the bond discount amortization), and credit Cash for $205,000 (the net amount paid to bondholders, which is calculated by subtracting the bond discount amortization from the semi-annual interest expense).

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 40,000 shares of cumulative preferred 2% stock, $75 par and 100,000 shares of $50 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $36,000; second year, $90,000; third year, $115,000; fourth year, $140,000.