Grodski Inc. produces and distributes fiber optic cable for use by tele-communic
ID: 2361716 • Letter: G
Question
Grodski Inc. produces and distributes fiber optic cable for use by tele-communications companies. Grodski Inc. issued $ 24,000,000 of 20- year, 10% bonds on April 1 at their face amount, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Illustrate the effects on the accounts and financial statements of recording the following selected transactions for the current year:April 1. Issued the bonds for cash at their face amount.
Oct. 1. Paid the interest on the bonds.
Dec. 31. Recorded accrued interest for three months.
Explanation / Answer
April 1. Issued the bonds for cash at their face amount. DR. Cash 24,000,000 CR. Bonds Payable 24,000,000 Effect on F/S = will increase asset and long term liabilities in the Bal Sht Oct. 1. Paid the interest on the bonds. DR. Interest Expense(24,000,000 X 10%X6/12) 1,200,000 CR. Cash 1,200,000 Effect on F/S = will increase expense in the Inc Stmt and decrease asset acct in the B/S Dec. 31. Recorded accrued interest for three months. DR. Interest Expense (24,000,000 X 10% X 3/12) 600,000 CR. Interest Payable 600,000 Effect on F/S = will increase expense in the Inc Stmt and increase current liability acct in the B/S
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