1.
Bonds
Bonds are a kind of interest bearing notes payable, usually issued by companies, universities and governmental organizations. It is a debt instrument used for the purpose of raising fund of the corporations or governmental agencies. If selling price of the bond is equal to its face value, it is called as par on bond. If selling price of the bond is lesser than the face value, it is known as discount on bond. If selling price of the bond is greater than the face value, it is known as premium on bond.
To Prepare: The
1.
Explanation of Solution
Prepare the journal entry to record issuance of bonds payable as on 1st January 2018.
Date | Account titles and Explanation | Debit | Credit |
January 1, 2018 | Cash | $3,000,000 | |
Bonds payable | $3,000,000 | ||
(To record issuance of bonds payable at face value) |
Table (1)
Cash is a current asset, and it is increased. Therefore, debit cash account for $3,000,000.
Bonds payable is a long term liability, and it is increased. Therefore, credit bonds payable account for $3,000,000.
Prepare the journal entry to record the payment of semi- annual interest expense as on 30th June 2018.
Date | Account titles and Explanation | Debit | Credit |
June 30, 2018 | Interest expense | $135,000 | |
Cash | $135,000 | ||
(To record payment of semiannual interest expenses) |
Table (2)
Interest expense is a component of
Cash is a current asset, and it is decreased. Therefore, credit cash account for $135,000.
Prepare the journal entry to record the payment of semi- annual interest expense as on 30th June 2018.
Date | Account titles and Explanation | Debit | Credit |
December 31, 2018 | Interest expense | $135,000 | |
Cash | $135,000 | ||
(To record payment of semi-annual interest expenses) |
Table (3)
Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $135,000.
Cash is a current asset, and it is decreased. Therefore, credit cash account for $135,000.
Working note:
Calculate interest expenses.
2.
To Prepare: The journal entry to record the issuance of bonds as on 1st January 2018, and the first two semiannual interest payment on June 30, 2018 and December 31, 2018.
2.
Explanation of Solution
Prepare the journal entry to record issuance of bonds payable as on 1st January 2018.
Date | Account titles and Explanation | Debit | Credit |
January 1, 2018 | Cash | $2,813,067 | |
Discount on bonds payable (1) | $186,933 | ||
Bonds payable | $3,000,000 | ||
(To record issuance of bonds payable at discount) |
Table (4)
Cash is a current asset, and it is increased. Therefore, debit cash account for $2,813,067.
Discount on bonds payable is a contra liability, and it is increased. Therefore, debit discount on bonds payable account for $186,933.
Bonds payable is a long term liability, and it is increased. Therefore, credit bonds payable account for $3,000,000.
Working note:
Calculate discount on bonds payable.
Prepare the journal entry to record the payment of semi- annual interest expense as on 30th June 2018.
Date | Account titles and Explanation | Debit | Credit |
June 30, 2018 | Interest expense (2) | $140,653 | |
Discount on bonds payable (4) | $5,653 | ||
Cash (3) | $135,000 | ||
(To record payment of semi- annual interest expenses) |
Table (5)
Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $140,653.
Discount on bonds payable is a contra, and it is decreased. Therefore, credit discount on bonds payable account for $5,653.
Cash is a current asset, and it is decreased. Therefore, credit cash account for $135,000.
Working notes:
Calculate interest expense.
Calculate Cash amount.
Calculate Discount on bonds payable.
Prepare the journal entry to record the payment of semi- annual interest expense as on 31st December 2018.
Date | Account titles and Explanation | Debit | Credit |
December 31, 2018 | Interest expense (5) | $140,936 | |
Discount on bonds payable (7) | $5,936 | ||
Cash (6) | $135,000 | ||
(To record payment of semi- annual interest expenses) |
Table (6)
Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $140,936.
Discount on bonds payable is a contra liability, and it is decreased. Therefore, credit discount on bonds payable account for $5,936.
Cash is a current asset, and it is decreased. Therefore, credit cash account for $135,000.
Working notes:
Calculate interest expense.
Calculate Cash amount.
Calculate Discount on bonds payable.
3.
To Prepare: The journal entry to record the issuance of bonds as on 1st January 2018, and the first two semiannual interest payment on June 30, 2018 and December 31, 2018.
3.
Explanation of Solution
Prepare the journal entry to record issuance of bonds payable as on 1st January 2018.
Date | Account titles and Explanation | Debit | Credit |
January 1, 2018 | Cash | $3,203,855 | |
Premium on bonds payable (8) | $203,855 | ||
Bonds payable | $3,000,000 | ||
(To record issuance of bonds payable at premium) |
Table (7)
Cash is a current asset, and it is increased. Therefore, debit cash account for $3,203,855.
Premium on bonds payable is an adjunct liability, and it is decreased. Therefore, debit discount on bonds payable account for $203,855.
Bonds payable is a long term liability, and it is increased. Therefore, credit bonds payable account for $3,000,000.
Working note:
Calculate premium on bonds payable.
Prepare the journal entry to record the payment of semi- annual interest expense as on 30th June 2018.
Date | Account titles and Explanation | Debit | Credit |
June 30, 2018 | Interest expense (9) | $128,154 | |
Premium on bonds payable (11) | $6,846 | ||
Cash (10) | $135,000 | ||
(To record payment of semi- annual interest expenses) |
Table (8)
Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $128,154.
Premium on bonds payable is an adjunct liability, and it is increased. Therefore, credit discount on bonds payable account for $6,846.
Cash is a current asset, and it is decreased. Therefore, credit cash account for $135,000.
Working notes:
Calculate interest expense.
Calculate Cash amount.
Calculate Premium on bonds payable.
Prepare the journal entry to record the payment of semi- annual interest expense as on 31st December 2018.
Date | Account titles and Explanation | Debit | Credit |
December 31, 2018 | Interest expense (12) | $127,880 | |
Premium on bonds payable (14) | $7,120 | ||
Cash (13) | $135,000 | ||
(To record payment of semi- annual interest expenses) |
Table (9)
Interest expense is a component of stockholders’ equity, and it is decreased. Therefore, debit interest expense account for $127,880.
Premium on bonds payable is an adjunct liability, and it is increased. Therefore, credit discount on bonds payable account for $7,120.
Cash is a current asset, and it is decreased. Therefore, credit cash account for $135,000.
Working notes:
Calculate interest expense.
Calculate Cash amount.
Calculate Discount on bonds payable.
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Chapter 9 Solutions
Financial Accounting - Access
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning