Question

15

1)  Thomson Co. produces and distributes semiconductors for use by computer manufacturers. Thomson Co. issued $1,200,000 of 10-year, 12% bonds on May 1 of the current year at face value, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions for the current year. Refer to the Chart of Accounts for exact wording of account titles.

May	1	Issued the bonds for cash at their face amount.
Nov.	1	Paid the interest on the bonds.
Dec.	31	Recorded accrued interest for two months.

Journalize the transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1
2
3
4
5		Adjusting Entries
6
7

2)

Entries for Issuing Bonds and Amortizing Discount by Straight-Line Method

On the first day of its fiscal year, Chin Company issued $18,300,000 of five-year, 6% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 7%, resulting in Chin Company receiving cash of $17,539,055.

a. Journalize the entries to record the following:

1. Issuance of the bonds.
2. First semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)
3. Second semiannual interest payment. The bond discount amortization, using the straight-line method, is combined with the semiannual interest payment. (Round your answer to the nearest dollar.)

For a compound transaction, if an amount box does not require an entry, leave it blank. Round your answers to the nearest dollar.

1.	Cash
	Discount on Bonds Payable
	Bonds Payable
2.	Interest Expense
	Discount on Bonds Payable
	Cash
3.	Interest Expense
	Discount on Bonds Payable
	Cash

Answer 1

Question-1
Date	Description	Post Ref	Debit	Credit	Assets	Liabilities	Equity
May 1	Cash		1200000		↑
	Bonds payable			1200000		↑
Nov 1	Interest expense		72000				↓	=1200000*12%*6/12
	Cash			72000	↓
Dec 31	Interest expense		24000				↓	=1200000*12%*2/12
	Interest payable			24000		↑

Question-2
1	Cash	17539055
	Discount on Bonds Payable	760945
	Bonds Payable		18300000
2	Interest Expense	625095
	Discount on Bonds Payable		76095	=760945/10
	Cash		549000	=18300000*6%*6/12
3	Interest Expense	625095
	Discount on Bonds Payable		76095	=760945/10
	Cash		549000	=18300000*6%*6/12