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.
Prepare all journal entries associated with these bond issues for the year.
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 ...
The solution explains the journal entries for bond transactions.