Olstad Company issued $409,000 of 7%, 20-year bonds on January 1, 2012, at face

Question

Olstad Company issued $409,000 of 7%, 20-year bonds on January 1, 2012, at face value. Interest is payable annually on January 1. Prepare the journal entries to record the following events. (a) The issuance of the bonds. Date Account/Description Debit Credit Jan. 1 (b) The accrual of interest on December 31, 2012. Date Account/Description Debit Credit Dec. 31 (c) The payment of interest on January 1, 2013. Date Account/Description Debit Credit Jan. 1 (d) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded. Date Account/Description Debit Credit Jan. 1, 2032

Explanation / Answer

(a) 1 Jan 12 Cash Dr 409,000 Bond Payable Cr 409,000 (b)For each annual period, below entries will repeat 31 Dec12 Bond Int Exp Dr 28630 Bond Int Payable Cr 28630 (Int on Bond = $409000*7% = 28630) (c) 1 Jan 13 Bond Int Payable Dr 28630 Cash Cr 28630 (d) 1 Jan 2032 Bond Payable Dr 409,000 Cash Cr 409,000

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