Question

Bonds Issued at Face Value D&E Stamps issued the following bonds: Date of issue and sale: Principal amount: April 1, 20-1 $400,000 100 Sale price of bonds: Denomination of bonds: Life of bonds: Stated rate: $1,000 10 years 7%, payable semiannually on September 30 and March 31 1. Prepare journal entries for: a. Issuance of the bonds. b. Interest payment on the bonds on September 30. c. Year-end adjustment on the bonds.

Answer 1

	date	accounts	debit	credit
a	april 1	Cash a/c	400,000
		.............To bonds payable a/c		400,000
		(total principal amount is received since bonds are issued at face value)
b	sep 30	Interest expense a/c	14,000
		..............To cash a/c		14,000
		(amount = 400,000*7%*6 months / 12 months)
c	dec 31	interest expense a/c	7,000
		..............To interest payable a/c		7,000
		(amount = 400,000*7%*3 months / 12 months =>7,000)