On January 1, Porter Corporation issued $400,000, 6%, 5-year bonds at 95. Intere

Question

On January  1, Porter Corporation issued $400,000, 6%, 5-year bonds at 95. Interest is payable semiannually on July 1 and January 1.

Instructions

Prepare journal entries to record the

(a)   Issuance of the bonds.

(b)   Payment of interest on July 1, assuming no previous accrual of interest.

(c)   Accrual of interest on December 31.

Date

Account

Debit

Credit

  

Date

     

Account

     

Debit

     

Credit

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

  

     

     

     

     

     

     

     

     

  

     

     

     

  

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Cash (400000*95%) Dr. 380000

Discount on Bonds Payable (400000*5%) Dr. 20000

Bonds Payable Cr. 400000

Part B:

Bond Interest Expense (400000*6%*1/2) Dr. 12000

Discount on Bonds Payable (20000/10) Cr. 2000

Cash Cr. 10000

Part C:

Bond Interest Expense Dr. 12000

Discount on Bonds Payable Cr. 2000

Bond Interest Payable Cr. 10000

Notes:

The journal entries have been prepared with the use of straight line method of amortization.

Thanks.

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