Question

Presented below are two independent situations.

1.		On January 1, 2020, Sheridan Company issued $384,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.
2.		On June 1, 2020, Skysong Company issued $336,000 of 11%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.

For each of these two independent situations, prepare journal entries to record the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a)		The issuance of the bonds.
(b)		The payment of interest on July 1.
(c)		The accrual of interest on December 31.

Answer 1

Solution: 1
Journal Entries
Transaction	Account Title and explanation	Debit	Credit
A	Cash	$               3,84,000
	Bonds Payable		$                 3,84,000
	(to record the issue of Bonds Payable)
B	Interest Expenses ($ 384,000 X 9% X 3 / 12 Month)	$                     8,640
	Cash		$                       8,640
	(to record the Payment of interest )
C	Interest Expenses ($ 384,000 X 9% X 3 / 12 Month)	$                     8,640
	Interest Payable		$                       8,640
	(to record the accrued interest as on dec 31)
Solution: 2
Journal Entries
Transaction	Account Title and explanation	Debit	Credit
A	Cash	$               3,51,400
	Bonds Payable		$                 3,36,000
	Interest Payable ($ 336,000 X 11% X 5 / 12 Months)		$                     15,400
	(to record the issue of Bonds Payable)
B	Interest Expenses ($ 336,000 X 11% X 1 / 12 Month)	$                     3,080
	Interest Payable	$                  15,400
	Cash		$                     18,480
	(to record the Payment of interest )
C	Interest Expenses ($ 336,000 X 11% X 6 / 12 Month)	$                  18,480
	Interest Payable		$                     18,480
	(to record the accrued interest as on dec 31)