Question

On May 1, 2020, Sunland Corp. issued $850,000, 9%, 5-year bonds at face value. The bonds were dated May 1, 2020, and pay interest annually on May 1. Financial statements are prepared annually on December 31. Prepare the journal entry to record the issuance of the bonds. Prepare the adjusting entry to record the accrual of interest on December 31, 2020. Show the balance sheet presentation on December 31, 2020. Prepare the journal entry to record payment of interest on May 1, 2021. Prepare the adjusting entry to record the accrual of interest on December 31, 2021. Assume that on January 1, 2022, Sunland pays the accrual bond interest and calls the bonds. The call price is 101. Record the payment of interest and redemption of the bonds.

Answer 1

Bond is a fixed income security in which issuer promises pay a series of interest payment and repay the principle on maturity to the investor. Credit | Debit $8,50,000 $8,50,000 Sunland Corp Balance Sheet (Partial) December 31, 2020 Current Liabilities Interest Payable $51,000 $51,000 $51,000 Non-Current Liabilities Bond Payable $8,50,000 $9,01,000 $25,500 $51,000 Date Accounts and Explanation May 1, 2020 Cash Bond Payable (To record issue of bond) Dec 31, 2020 Interest Expense Interest Payable (To record interest Accrual) [($850000 x 9%)/12 x 8] May 1, 2020 Interest Expense Interest Payable Cash [($850000 x 9%)/12 x 4] Dec 31, 2021 Interest Expense Interest Payable (To record interest Accrual) [($850000 x 9%)/12 x 8] Jan 1, 2022 Bond Payable Interest Payable Loss on Redemption of bond Cash (To record redemption of bond) $76,500 $51,000 $51,000 $8,50,000 $51,000 $8,500 $9,09,500