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Entries to Record Issuance of Bonds, Interest Accrual, and Bonds

Hornung Electric sold $300,000, 10%, 10 yr bonds on Jan. 1, 2006. The bonds were dated Jan. 1 and paid interest on Jan 1 and July 1. The bonds were sold at 104.
Instructions:

a. Prepare the journal entry to record the issuance of the bonds on Jan. 1, 2006.
b. At Dec. 31, 2006 the balance in the Premium on bonds payable account is $10,800. Show the balance sheet presentation of accrued interest and the bond liability at Dec. 31, 2006.
c. On Jan. 1 2008 when the carrying value of the bonds was $309,600, the company redeemed the bonds at 105. Record the redemption of the bonds assuming that interest for the period has already been paid. (loss=$5,400)

Solution Preview

Hornung Electric sold $300,000, 10%, 10 yr bonds on Jan. 1, 2006. The bonds were dated Jan. 1 and paid interest on Jan 1 and July 1. The bonds were sold at 104.

Instructions:
a. Prepare the journal entry to record the issuance of the bonds on Jan. 1, 2006.

Cash 312,000
Bonds ...

Solution Summary

This solution is comprised of a detailed explanation to prepare the journal entry to record the issuance of the bonds on Jan. 1, 2006, show the balance sheet presentation of accrued interest and the bond liability at Dec. 31, 2006, and record the redemption of the bonds assuming that interest for the period has already been paid.

$2.19