Question

On January 1, 2020, Klosterman Company issued $500,000, 10%, 10-year bonds at face value. Interest is payable annually on January 1.

Instructions: Prepare journal entries to record the following.

(a)  The issuance of the bonds.

(b) The accrual of interest on December 31, 2020.

(c)  The payment of interest on January 1, 2021.

Answer 1

--Journal entries as asked:

Date	Accounts title	Debit	Credit
01-Jan-20	Cash	$500,000
	Bonds Payable		$500,000
	(to record issuance)
31-Dec-20	Bond interest expense ($500000 x1 0%)	$50,000
	Interest payable		$50,000
	(to record accrual of 12 month interest)
01-Jan-21	Interest Payable	$50,000
	Cash		$50,000
	(to record payment)