Question

5. Bonds Payable – Issued “plus accrued interest ”.

      Jump Company issued $200,000 of bonds payable at face value on April 1, 2016. The bonds were authorized on January 1, 2016, with a stated rate of 4% and a maturity date of December 31, 2025. Interest payments are to be made annually, starting December 31, 2016. Because the authorization date preceded the issue date, the bonds were issued “plus accrued interest.” Prepare the following journal entries. Note, there are two different ways to handle the accrued interest, but be consistent between Part A and Part B.

1.   The issue of the bonds at April 1, 2016, plus accrued interest.
2. The payment of the first interest payment on December 31, 2016.

Answer 1

Ans:

Date	Account Title and explanation	Debit $	Credit $
1/4/2016	cash	202,000
	To Bonds Payable		200,000
	To Interest on Bonds payable		2,000
	(Being Bonds issued with Accrued interest for 2 months)
	(200,000*4%*3/12)=$2,000
31/12/2016	Interest Expense	6,000
	Interest payable	2,000
	TO cash		8,000
	(Being interest paid)
	200,000*4%*9/12=$6,000