Question

1. Kiwi Corporation issued at par $350,000, 9% bonds on January 1, 2020. Interest is paid annually on December 31. The principal and the final interest payment are due on December 31, 2021.

   Required:

   1. Prepare the entry to recognize the issuance of the bonds.

   2020 Jan. 1	Cash Bonds Payable Cash Discount on Bonds Payable Interest Expense Premium on Bonds Payable
   	Bonds Payable Bonds Payable Cash Discount on Bonds Payable Interest Expense Premium on Bonds Payable
   	Record issuance of bonds at par.

   1. When bonds are issued, any premium or discount is recorded in a separate valuation account.

   2. Prepare the journal entry for December 31, 2020.

   2020 Dec. 31	Interest Expense Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
   	Cash Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
   	Record interest expense

   2. When calculating interest, consider the principal, the annual interest rate and the time period.

   3. Prepare the journal entry to record repayment of the principal on December 31, 2021.

   2021 Dec. 31	Interest Payable Bonds Payable Cash Discount on Bonds Payable Interest Payable Premium on Bonds Payable
   	Cash Cash Discount on Bonds Payable Interest Expense Interest Payable Premium on Bonds Payable
   	Record repayment of bond principal

   3. Repayment of the principal at maturity retires the obligation.

Answer 1

1.

Jan.1, 2020	Cash	350,000
	Bonds payable		350,000

2.

Dec. 31, 2020	Interest expense	31,500
	Cash		31,500

3.

Dec. 31, 2021	Bonds payable	350,000
	Cash		350,000

Annual interest expense = 350,000 x 9%

= $31,500