Olstad Company issued $506,900 of 7%, 10-year bonds on January 1, 2012, at face

Question

Olstad Company issued $506,900 of 7%, 10-year bonds on January 1, 2012, at face value. Interest is payable annually on January 1.

(a) Prepare the journal entries to record the issuance of the bonds.

(b) Prepare the journal entries to record the accrual of interest on December 31, 2012

(c) Prepare the journal entries to record the payment of interest on January 1, 2013

(d) Prepare the journal entries to record the redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded

Explanation / Answer

Hi,

Please find the entries as follows;

a)

Cash Dr. 506900

Bonds Payable Cr. 506900

b)

Interest Expense Dr. (506900*.07) 35483
Interest Payable Cr. 35483

c)

Interest Payable Dr. 35483

Cash Cr. 35483

d)

Bonds Payable Dr. 506900

Cash Cr. 506900

Thanks.

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