Corporation had the following bond transactions during the fiscal year 2014: a.
ID: 2499427 • Letter: C
Question
Corporation had the following bond transactions during the fiscal year 2014: a. On January 1: issued $10,000 of 6%, 5 year bonds at 102. Straight-line amortization method is used. Interest is payable semi-annual on July 1 and Jan 1. b. On July 1: issued $500,000 of 10%, 10-year bonds at 88.5. Straight-line amortization method is used. Interest is payable semi-annual on July 1 and Jan 1. c. On July 1: issued $10,000 of 8%, 10-year bonds for $10,853 cash. Straight-line amortization method is used. Interest is payable semi-annual on July 1 and Jan 1. Requirements: • Prepare 3 separate journal entries for the issuance of the 3 bonds on Jan 1 and July 1. • Prepare journal entry for the payment of interest on July 1 for the bonds issued on Jan 1, assuming no prior accrual (note: should also include amortization of the premium). • Prepare separate journal entries for the accrual of interests on December 31 for all 3 bonds (should also include amortization of any premium or discount) (Round all calculations to nearest whole dollar.)
Explanation / Answer
Answer:
Amount in $
Journal Entries for issuance of bonds Date Accounts and Explanation Debit $ Credit $ 01-01-14 Cash 10,200 Premium on issue of Bonds 200 6% Bonds Payable 10,000 (To record issue of 6% bond @$102) 01-07-14 Cash 442,500 Discount on issue of Bonds 57,500 10% Bonds Payable 500,000 (To record issue of 10% bond @$ 88.5) 01-07-14 Cash 10,853 Premium on issue of Bonds 853 8% Bonds Payable 10,000 (To record issue of 8% bond for $10,853)