Bonds issued at par - basic concepts On April 1, year 1, Les Products, Inc. issu
ID: 2596188 • Letter: B
Question
Bonds issued at par - basic concepts
On April 1, year 1, Les Products, Inc. issued at par $5 million of 12%, 10-year bonds payable. Interest is payable semiannually each April 1 and October 1.
(a) What is the amount of cash paid to bondholders for interest during year 1?
$_______________
(b) Give the adjusting entry necessary at December 31, Year 1 (if any), regarding this
bond issue.
(c) Interest expense on this bond issue reported in Les Products' Year 1 income statement is:
$_______________
(d) With respect to this bond issue, Les Products' balance sheet at December 31, Year 1, includes bonds payable of $__________________ and interest payable of $_______________ (indicate $0 or "none" if the item is not reported.
(e) Give the journal entry made by Les Products on April 1, Year 2, to record the semiannual payment of interest to bondholders.
Bonds issued at par - basic concepts
On April 1, year 1, Les Products, Inc. issued at par $5 million of 12%, 10-year bonds payable. Interest is payable semiannually each April 1 and October 1.
(a) What is the amount of cash paid to bondholders for interest during year 1?
$_______________
(b) Give the adjusting entry necessary at December 31, Year 1 (if any), regarding this
bond issue.
(c) Interest expense on this bond issue reported in Les Products' Year 1 income statement is:
$_______________
(d) With respect to this bond issue, Les Products' balance sheet at December 31, Year 1, includes bonds payable of $__________________ and interest payable of $_______________ (indicate $0 or "none" if the item is not reported.
(e) Give the journal entry made by Les Products on April 1, Year 2, to record the semiannual payment of interest to bondholders.
Explanation / Answer
(a) Cash paid to bondholders for interest during year 1: $300,000
$5,000,000 x 12% x 1/2 = $300,000
(b)
(c) Interest expense on bond issue reported in Year 1 statement is: $450,000
$5,000,000 x 12% x 9/12 = $450,000
(d) Balance sheet at December 31, Year 1, includes bonds payable of $5,000,000 and interest payable of $150,000
(e)
Date Account Titles and Explanation Debit Credit Dec. 31, Year 1 Interest expense ($5 million x 12% x 3/12) 150000 Interest payable 150000 (To record interest accrued on bonds payable)