Question

Date Account Titles and Explanation Debit Credit Problem 3 (20 points) Stevens Manufacturing Company obtained authorization to issue 10-year bonds with a face value of $5 million. The bonds are dated June 1, 2018 and have a contract rate of interest of 6 percent. They pay interest on December 1 and June 1. The bonds are issued on September 1, 2018, at 100 plus 3 months' accrued interest. Prepare the necessary journal entries in general journal form on: a. September 1, 2018, to record the issuance of the bonds. (5 points) b. December 1, 2018, to record the first semiannual interest payment on the bond issue. (5 points c. December 31, 2018, to record interest expense accrued through year-end. (5 points) d. June 1, 2019, to record the second semiannual interest payment.(5 points) www.euruni.edu

Answer 1

Credit Debit $ 5,075,000 Date Account 01-09-18 Cash Bonds Payable A/C Interest Payable A/C (0.06*5,000,000*3/12) (Bonds issued at face value $5 million plus accrued interest i.e. interest payable for 3 months from June till September) $5,000,000 $ 75,000 $ $ 75,000 75,000 $ 150,000 01-12-18 Interest Payable A/c (0.06*5,000,000*3/12) Interest Expense A/C (0.06*5,000,000*3/12) Cash (Accrued Interest Payable at time of issuance for 3 months from 1, June 2018 till 1, September 2018 is paid now) (Interest Expense for 3 months from 1, September 2018 till 1, December 2018 is due) or first semiannual interest payment. $ 25,000 31-12-18 Interest Payable A/c (0.06*5,000,000*1/12) Interest Expense A/C ( Interest Expense Accrued till 31, December 2018 from 1, December 2018) $ 25,000 $ $ 25,000 125,000 01-06-19 Interest Payable A/c (0.06*5,000,000*1/12) Interest Expense A/c (0.06*5,000,000*5/12) Cash ( Interest Expense for 5 months from 1, January 2019 till 1, June 2019 and Interest payable of December 2018) $ 150,000