Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, 2016. Th

Question

Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, 2016. The bonds were issued at face value. Interest is payable in cash on December 31st of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual cash revenue of $125,000 which was collected on December 31 of every year, beginning 12/31/16.

Required: A) Pepare the journal entries for these events and post them to T-accounts for 2016 and 2017. B) Prepare the income statement, balance sheet,a nd statement of cash flows for 2016 and 2017.

Explanation / Answer

A) (all figures are in $)

Note: The lease has been assumed to be an operating lease

Note: there is no depreciation of land

B) (all figures are in $)

Date Account title and explanation Debit($) Credit($) 2016 Jan-01 Cash 500000 Bond payble 500000 (issued bond) Jan-01 land 500000 cash 500000 (purchase land) Dec-31 cash 125000 lease rent received 125000 (lease revenue collected) Dec-31 Interest expense 35000 cash 35000 (inteerst on bonds payable paid) 2017 Dec-31 cash 125000 lease rent received 125000 (lease revenue collected) Dec-31 Interest expense 35000 cash 35000 (inteerst on bonds payable paid)

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