Question

) Central Corporation has an opportunity to acquire a company that produces one of the parts it uses in its manufacturing process. After careful analysis, Central has decided to raise the necessary capital for the acquisition by issuing S3 ,000,000 of 75%, 10-year bonds dated April 1 . 2014, with interest payments on October l and April Assume the bonds are issued on June 1, 2014 at face value plus accrued interest. Central's year end is December 3 a) Prepare the entry to record the issuance of the bonds on June 1,2014. b) Prepare the entry on October 1, 2014, to record the interest payment. c) Prepare the entry to record the accrued interest on December 31, 2014 d) Prepare the April 1,2015 entry to record the interest payment. Answer General Journal Date Accounts Debit Credit 2014 a) June I b) Oct. 1 c) Dec, 31 2015 d) Apr. 1

Answer 1

1 Journal entry: 3 Date accounts & explanation debit credit 4 Jun-01lCash alc 3037500 To Bonds payable a/c To Interest payable (3000000*7.5%*2/12) a/c 3000000 37500 6 (To record bond issue) 8 9 10 Oct-01 Interest payable a/c 37500 75000 Interest expense (37500*2) a/c To Cash a/c (To record interest paid) 112500 12 13 14 15 16 Dec-31 Interest expense (3000000*7.5%*3/12) a/c 56250 To Interest payable a/c (To record accured interest) 56250 18 Apr-01 Interest payable a/c 19 20 21 56250 56250 Interest expense a/c To Cash a/c (To record interest paid) 112500