Question

On May 1, X1, John Co. issued a $300,000 7-year bond, with 6% interest and issued at 104. Interest payment dates are June 30 and December 31. Bonds dated Dec 31, XO. 1) Entry to issue bonds 2) Entries on 6/30/X1 3) Entries on 12/31/X1 4) On 9/30/X4, all bonds are retired at 102

Answer 1

1) Face value of the bonds is not specified assuming it to be $100 per bond:

May 1, X1 ; Bank A/c_____________Dr. 312000

To 7 Year Bond Payable - 300000

To Securities Premium - 12000

( Being 7 year bond issued at premium)

June 30, X1: Interest A/c____________Dr. 3000

To Interest Payable A/c - 3000

(Being Interest Accrued for 2 months at 6% p.a.)

On payment of Interest

Interest Payable A/c_________Dr. 3000 -

To Bank - 3000  

(Being interest due paid)

Dec.31, X1 Interest A/c____________ Dr. 9000

To Interest Payable A/c - 9000

(Being Interest accrued for the half year at the rate of 6% p.a.)

On payment of Interest

Interest Payable A/c_________Dr. 9000 -

To Bank - 9000  

(Being interest due paid)

9/30/X4

7 Year Bond Payable A/c______Dr. 300000

Securities Premium A/c______ Dr. 6000

To Bank A/c - 306000

(Being 7 years bond redeemed at premium)