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Dixon Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $480,000. Interest is payable annually. The discount is amortized using the straight-line method. Prepare journal entries for the following transactions. A. July 1, 2018: entry to record issuing the bonds B. June 30, 2019: entry to record payment of interest to bondholders C. June 30, 2019: entry to record amortization of discount D. June 30, 2020: entry to record payment of interest to bondholders E. June 30, 2020: entry to record amortization of discount

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 5PB
Textbook Problem
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Dixon Inc. issued bonds with a $500,000 face value, 10% interest rate, and a 4-year term on July 1, 2018 and received $480,000. Interest is payable annually. The discount is amortized using the straight-line method. Prepare journal entries for the following transactions.

A. July 1, 2018: entry to record issuing the bonds

B. June 30, 2019: entry to record payment of interest to bondholders

C. June 30, 2019: entry to record amortization of discount

D. June 30, 2020: entry to record payment of interest to bondholders

E. June 30, 2020: entry to record amortization of discount

To determine

Introduction:

Journal entries record business transactions. These transactions have double effect on accounts such that total of all assets equate with liabilities and equities.

To prepare:

Journal entries for the given transactions.

Explanation of Solution

Record issuance of bond:

Date Account Debit ($) Credit ($)
July 1, 2018 Cash 480,000
Discount on bond payable 20,000
Bond payable 500,000
(To record issuance of bond.)

Table (1)

  • Cash is an asset and it is increased by $480,000. Therefore, cash is debited with $480,000.
  • Discount on bond payable is a contra liability account and it is increased by $20,000. Therefore, discount on bond payable is debited with $20,000.
  • Bond payable is a liabilty account and it is increased by $500,000. Therefore, bomd payable is credited with $500,000.

Record interest expense:

Date Account Debit ($) Credit ($)
June 30, 2019 Interest Expense ($500,000×10%) 50,000
Cash 50,000
(To record interest expense on bonds payable.)

Table (2)

  • Interest Expense is an expense and it is increased by $50,000. Therefore, interest expense is debited with $50,000.
  • Cash is an asset and it is decreased by $50,000. Therefore, cash is credited with $50,000.

Record amortization of discount:

Date Account Debit ($) Credit ($)
June 30, 2019 Interest Expense ($20,0004) 5,000
Discount on bond payable 5,000
(To record amortization of discounton bonds payable

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Chapter 13 Solutions

Principles of Accounting Volume 1
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