Question

(Entries for Bond Transactions) Presented below are two independent situations.

1. On January 1, 2017 Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1 and January 1

2. On June 1, 2017, Garfunkel Company issued $100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest interest is payable semiannually on July 1 and January 1.

Instructions: For each of these two independent situations, prepare journal entries to record the following:

1) The issuance of the bonds

2) The payment of interest on July 1

3) The accrual of interest on December 31

Answer 1

Solution:1.)

Journal Entries:

Transactions	Date	Account Title and Explanation	Debit ($)	Credit ($)
1.	Jan.1, 2017	Cash	200,000
		Bonds Payable		200,000
		( To record the issuance of bonds)
2.	July 1, 2017	Interest Expenses ($200,000 ×9% ×3/12)	4,500
		Cash		4,500
		( To record the payment of interest on July 1)
3.	Dec.31, 2017	Interest Expenses ($200,000 × 9% × 3/12)	4,500
		Interest Payable		4,500
		(To record the accural of interest on December 31)

Solution 2.)

Journal Entries:

Transactions	Date	Account Title and Explanation	Debit ($)	Credit ($)
1.	June 1, 2017	Cash	105,000
		Bonds Payable		100,000
		Interest Expenses ($100,000 ×12% × 5/12)		5,000
		(To record the issuance of the bonds with accured interest)
2.	July 1, 2017	Interst Expenses ($100,000 × 12% ×6/12)	6,000
		Cash		6,000
		( To record the payment of interest on July 1)
3.	Dec.31, 2017	Interest Expenses ($100,000 × 12% × 6/12)	6,000
		Interest Payable		6,000
		(To record the accural of interest on December 31)