Question

E14-3 CRISIS2 Co. issued $500,000, 10 Year, 5% bonds on March 1, 2006, with interest paid twice a year on Aug 30 & Feb 28. The bonds sold for $428,940 yielding a 7% effective interest. CRISIS2 closes its books annually on Dec 31. Journalize the Bond Issue Cr. Dr. March 2006 Journalize CRISIS2's first interest payment made on Aug 30, 2006 Cr. Dr. Aug 30 2006 Journalize the adjusting entry required on Dec 31 2006 Cr. Dr. Dec 31 2006 Journalize the second interest payment made on Feb 28 2007 Cr. Feb 28 2007 Dr.

Answer 1

		DR	CR
01-Mar-06	Cash	500,000.00
	Bonds Payable		- 500,000.00
	(To record bonds issued at face value)
30-Aug-06	On each Aug 30 and Feb 28 for 10 years, beginning 2006 Aug 30 (ending 2016 Aug 30), the entry would be (Calculate interest as Principal * Interest* Frequency of the year)
	Bond Interest Expense (500000*5%*6/12)	12,500.00
	Cash		-   12,500.00
	(To record first interest payment)
31-Dec-06	An adjusting entry on December 31 to accrue interest earned for Jan and Feb but not paid until Feb 28 of the next year. That entry would be:
	Bond Interest Expense (500000*5%*2/12)	4166.67
	Interest Payable		-4166.67
	(To record accrued interest for Jan and Feb payable in Feb.
28-Feb-07	Bond Interest Expense (500000*5%*4/12)	8,333.33
	Interest Payable	4,166.67
	Cash		12,500.00
	(To record payment of interest)