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Bonds: Journalized Entries

2012
July 1 Issued $ 42,000,000 of 10 yr, 13% callable bonds dated July 1, 12 at a market (effective) rate of 10%, receiving cash of $49,851,213. Interest is payable semiannually on December 31 and June 30.

Oct 1 Borrowed $510,000 as a six yr 9% installment from Challenger Bank The note requires annual payments of $113,689, with the first payment occurring on Sept 30,13.

Dec31 Accrued $11,475 of interest on the installment note. The interest is payable on the date of the next installment note payment.

Dec31 Paid semiannual interest on the bond. The bonds premium is amortized annually in separate journal entry.
31. Recorded bond premium amortization of $ 392,561, which was determined using straight line method.
31 Closed the interest expense account.

Journalize the entries.

Solution Summary

This solution illustrates how to journalize entries related to issuing a bond, borrowing money on a note, accruing interest on both instruments, amortizing a discount using the straight line method and closing the interest expense account.

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