Question

Ashton, Inc., which closes its books on December 31, is authorized to issue $800,000 of nine percent, 20-year bonds dated May 1, with interest payments on November 1 and May 1.

Required
Prepare journal entries to record the following events, assuming that the bonds were sold at 100 plus accrued interest on October 1:
a. The bond issuance.
b. Payment of the first semiannual period’s interest on November 1.
c. Accrual of bond interest expense at December 31.
d. Payment of the semiannual interest on May 1 of the following year.
e. Retirement of $400,000 of the bonds at 101 on May 1, Year 2 (immediately after the interest payment on that date). Round to the nearest dollar. Use 360 days for calculations.

General Journal
Date	Description	Debit	Credit
a.
Oct.1	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	Bonds Payable	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	Issuance of bonds at 100 plus five months' accrued interest.
b.
Nov.1	Bond Interest Payable	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	To record semiannual interest payment.
c.
Dec.31	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	To accrue interest expense.
d.
May 1	Bond Interest Payable	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	To record semiannual interest payment.
e.
May 1	Bonds Payable	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	AnswerCashBonds PayableBond Interest PayableBond Interest ExpenseLoss on Bond Retirement	Answer	Answer
	To record retirement of bonds.

Answer 1

General Journal
Date	Description	Debit	Credit
a.
01-Oct	Cash	$ 830,000
	Bonds Payable		$ 800,000
	Bond Interest Payable		$ 30,000
	(Issuance of bonds at 100 plus five months' accrued interest)
b.
01-Nov	Bond Interest Payable	$ 30,000
	Bond Interest Expense ($800,000*9%*1/12)	$ 6,000
	Cash		$ 36,000
	(To record semiannual interest payment)
c.
31-Dec	Bond Interest Expense ($800,000*9%*2/12)	$ 12,000
	Bond Interest Payable		$ 12,000
	(To accrue interest expense)
cd.
01-May	Bond Interest Payable	$ 12,000
	Bond Interest Expense ($800,000*9%*4/12)	$ 24,000
	Cash		$ 36,000
	(To record semiannual interest payment)
e.
01-May	Bonds Payable	$ 400,000
	Loss on Bond retirement ($404,000-$400,000)	$ 4,000
	Cash ($400,000*101%)		$ 404,000
	(To record retirement of bonds)