On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at face value. The

Question

On May 1, 2011, Newby Corp. issued $600,000, 9%, 5-year bonds at face value. The
bonds were dated May 1, 2011, and pay interest semiannually on May 1 and November 1.
Financial statements are prepared annually on December 31.
Instructions
(a) Prepare the journal entry to record the issuance of the bonds.
(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2011.
(c) Show the balance sheet presentation on December 31, 2011.
(d) Prepare the journal entry to record payment of interest on May 1, 2012, assuming no accrual
(e) Prepare the journal entry to record payment of interest on November 1, 2012.
(f) Assume that on November 1, 2012, Newby calls the bonds at 102. Record the redemption of
the bonds
of interest from January 1, 2012, to May 1, 2012.

Explanation / Answer

a. 01.05.2011 Bank A/c --- Dr 6,00,000 To 9% Bonds A/c 6,00,000 (Being 9% bonds issued at face value) b. 01.11.2011 Interest on 9%bonds A/c – Dr 27,000 To Bank A/c 27,000 (Being interest paid for 6months @ 9%p.a) 31.12.2011 Interest on 9% bonds A/c--- Dr 4,500 To Accrued Interest on 9% bonds 4,500 (Being Accrued Interest accounted on 9% bonds) c. Liabilities: 9% Bonds 600000 Accrued Interest 4,500 d. 01.05.2012 Interest on 9% bonds A/c- Dr 22,500 Accrued Interest on 9% bonds A/c – Dr 4,500 To Bank a/c 27,000 (Being Interest paid for 6months @9%p.a) e. 01.11.2012 Interest on 9% bonds A/c- Dr 27,000 To Bank a/c 27,000 (Being Interest paid for 6months @ 9% p.a) f. 01.11.2012 9% Bonds A/c --- Dr 6,00,000 Premium on Bonds A/c Dr 12,000 To Bank A/c 6,12,000 (Being Bonds recalled @ 102 per bond)

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