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Bond transactions

See excel for better formatting.

Peru Corporation sold $1,500,000 6% 10 -year bonds on January 1, 2007. The bonds were
dated January 1, 2007, and pay interest on January 1. Peru Corporation uses the straight-line method to amortize bond premium or discount.

Instructions:
(a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2007,
assuming that the bonds sold at 103

Jan 1 Account title Amount
Account title Amount
Account title Amount

Dec 31 Account title Amount
Account title Amount
Bond Interest Payable Amount

(b) Prepare journal entries as in part (a) assuming that the bonds sold at 98

Jan 1 Account title Amount
Account title Amount
Account title Amount

Dec 31 Account title Amount
Account title Amount
Account title Amount

(c) Show the balance sheet presentation for the bond issue at December 31, 2007, using
(1) the 103 selling price, and then
Current Liabilities
Account title Amount

Long-term Liabilities
Account title Amount
Account title Amount Formula

(2) the 98 selling price.
Current Liabilities
Account title Amount

Long-term Liabilities
Account title Amount
Account title Amount Formula

Attachments

Solution Summary

The solution explains the journal entries relating to bond transactions

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