Joournal entries for bond transactions
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A company issued two unrelated bond issues this year, as follows:
a. $350,000 of 8%, 20-year bonds were issued at par on April 1.
The bonds pay semi-annual interest on April 1 and October 1.
b. $500,000 of 7%, 15-year bonds were issued at par on February 1. The bonds pay semi-annual interest on January 1 and July 1.
The company ends its accounting year on December 31.
Instructions:
Prepare all journal entries associated with these bond issues for the year.
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The solution explains the journal entries for bond transactions.
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a. Since the bonds are issued at par, the amount received would be the same as the face value of the bonds. The journal entry for bond issue is
April 1 Cash Dr 350,000
Bonds Payable Cr 350,000
The semi annual interest is 350,000 X 8%/2 = $14,000. The journal entry for interest payment is
Oct 1 Interest Expense Dr 14,000
Cash Cr 14,000
The year ends of ...
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