Question

P10-7B. Bonds Payable Journal Entries; Issued at Par Plus Accrued Interest Cheney, Inc., which closes its books on December 31, is authorized to issue $800,000 of six percent, 20-year bonds dated March 1, with interest payments on September 1 and March 1. Required Prepare journal entries to record the following events, assuming that the bonds were sold at 100 plus accrued interest on July 1. a. The bond issuance. b. Payment of the semiannual interest on September 1 c. Accrual of bond interest expense at December 31 d. Payment of the semiannual interest on March 1 of the following year. e. Retirement of $200,000 of the bonds at 102 on March 1, Year 3 (immediately after the interest payment on that date)

Answer 1

Journal entry

No	Account and explanation	debit	credit
a	Cash	808000
	Bonds payable		800000
	Interest payable (800000*6%*2/12)		8000
b	Interest expense	16000
	Interest payable	8000
	Cash		24000
c	Interest expense	16000
	Interest payable		16000
d	Interest payable	16000
	Interest expense	8000
	Cash		24000
e	Bonds payable	200000
	Loss on retirement of bonds	4000
	Cash		204000