Question

Pinkerton Corporation issued $4,000,000 of 6%, 20-year bonds payable at par value on January 1, 2016. Interest is payable each June 30 and December 31. Required: a The bonds were sold at their face value b The bonds were sold for $3,208,336 c The bonds were sold for $5,049,260 Prepare the calculations and journal entries to record the issuance of the bond and the first interest payment under the following three situations:

Pinkerton Corporation issued $4,000,000 of 6%, 20-year bonds payable at par value on January 1, 2016. Interest is payable each June 30 and December 31 Required: Prepare the calculations and journal entries to record the issuance of the bond and the first interest payment under the following three situations: a The bonds were sold at their face value b The bonds were sold for $3,208,336 c The bonds were sold for $5,049,260

Answer 1

Solution a:

Journal Entries - Pinkerton Corporation
Date	Particulars	Debit	Credit
1-Jan-16	Cash Dr	$4,000,000.00
	To Bond Payable		$4,000,000.00
	(To record bond issue)
30-Jun-16	Interest expense Dr ($4,000,000*3%)	$120,000.00
	To Cash		$120,000.00
	(To record interest payment)

Solution b:

Journal Entries - Pinkerton Corporation
Date	Particulars	Debit	Credit
1-Jan-16	Cash Dr	$3,208,336.00
	Discount on bond payable Dr	$791,664.00
	To Bond Payable		$4,000,000.00
	(To record issue of bond at discount)
30-Jun-16	Interest expense Dr ($4,000,000*3%)	$139,792.00
	To Cash		$120,000.00
	To Discount on bond payable ($791,664/40)		$19,792.00
	(To record interest payment)

Solution c:

Journal Entries - Pinkerton Corporation
Date	Particulars	Debit	Credit
1-Jan-16	Cash Dr	$5,049,260.00
	To Bond Payable		$4,000,000.00
	To Premium on Bond Payable		$1,049,260.00
	(To record issue of bond at premium)
30-Jun-16	Interest expense Dr	$93,768.00
	Premium on bond payable Dr ($1,049,260/40)	$26,232.00
	To Cash		$120,000.00
	(To record interest payment)