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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Bryan Company issued $500,000 of 10% face value bonds on January 1, 2019, for $486,000. The bonds are due December 31, 2021, and pay interest semiannually on June 30 and December 31. Bryan uses the straight-line amortization method.
Required:
Prepare the journal entries to record the issuance of the bonds and the first two interest payments.
Prepare journal entry to record issuance of bonds, and to record first two periods’ interest expenses.
Bonds:
Bonds are long-term promissory notes that are issued by a company while borrowing money from investors to raise fund for financing the operations.
Prepare journal entry to record issuance of bonds.
| Date | Account titles and Explanation | Debit | Credit |
| January 1, 2019 | Cash | $486,000 | Â |
| Â | Discount on bonds payable (balancing figure) | $14,000 | Â |
| Â | Â Â Â Â Bonds payable | Â | $500,000 |
| Â | (To record issuance of bonds) | Â | Â |
Table (1)
- Cash is a current asset, and it is increased. Therefore, debit cash account for $486,000.
- Discount on bonds payable is a contra liability, and it is increased. Therefore, debit discount on bonds payable account for $14,000.
- Bonds payable is a liability, and it is increased. Therefore, credit bonds payable account for $500,000.
Prepare journal entry to record first interest payments.
| Date | Account titles and Explanation | Debit | Credit |
| June 30, 2019 | Interest expense (balancing figure) | $27,333.33 | Â |
| Â | Â Â Â Â Discount on bonds payable (1) | Â | $2,333.33 |
| Â | Â Â Â Â Â Cash (2) | Â | $25,000.00 |
| Â | (To record payment of interest expense) | Â | Â |
Table (2)
- Interest expense is a component of stockholders’ equity, and it increases expense account. Therefore, debit interest expense account for $27,333.33.
- Discount on bonds payable is a contra liability, and it is decreased. Therefore, credit discount on bonds payable account for $2,333.33.
- Cash is a current asset, and it is decreased. Therefore, credit cash account for $25,000.
Working notes:
(1) Calculate discount on bonds payable.
(2) Calculate cash proceeds.
Prepare journal entry to record second interest payments
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