The XYZ Company has a fiscal year-end of March 31 st . On July 1 st , 2012 XYZ a
ID: 2426162 • Letter: T
Question
The XYZ Company has a fiscal year-end of March 31st.
On July 1st, 2012 XYZ authorized $600,000 of 10 year mortgage bonds (secured by property, plant and equipment with a fair value of $720,000). The bonds have a stated interest of 9%, with interest paid to the bondholders of record each December 31 and June 30.
On May 31st, 2013 XYZ issued 200 of the bonds, at a premium of $21,800. The company records amortization only on interest-payment dates and at its fiscal year-end. Prepare all journal entries relating to the bonds during the period July 1st, 2012 through March 31st, 2014.
Explanation / Answer
Answer: Journal entry:
1 july 2012
Bank A/C Dr. $600000
To Bank Loan A/C $600000
31 Dec 2012
Bond interest expense A/C Dr. $27000
To cash A/C $27000
30 june 2013
Bond interest expense A/C Dr. $27000
To cash A/C $27000
31 may 2013
Cash A/C Dr. $21800
To bonds payable A/C $20000
To Premium on bonds payable A/C $1800
30 june 2013
Bond interest expense A/C Dr. $28000
To cash A/C $27900
To Premium on bonds payable A/C $100
31 dec 2013
Bond interest expense A/C Dr. $28000
To cash A/C $27900
To Premium on bonds payable A/C $100
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