Best Inc. issued $600,000, 12%, 15-year bonds on January 1, 2017, at 95. Interes
ID: 2432363 • Letter: B
Question
Best Inc. issued $600,000, 12%, 15-year bonds on January 1, 2017, at 95. Interest is payable annually each January 1, The company uses the straight-Hine method of amortization for bond premium or discount Instructions: Prepare the journal entries to record: (a) The issuance of the bonds. b) The accrual of interest and the premium or discount amortization on December 31, 2017 (c) The payment of interest on January 1, 2018. (d) The redemption of bonds at matunty date, assuming interest for the last interest period has been paid and recorde TAKE HOME EXAMExplanation / Answer
Solution:
Journal entries for Best Inc.
A).Issuance of bonds.
1/Jan/2017 Cash / Bank account.......................Dr. 5,70,000
Discount on bonds payable...............Dr 30,000
To Bonds payable 6,00,000
( Being bonds issued at discount of 5%, 6,00,000*95% )
B) Accrual of interest and discount amortization as on 31/Dec/2017
31/Dec/2017 Interest expense account……..…………Dr. 74,000
To Discount on bonds payable 2,000
To Interest payable 72,000
( Being entry for discount amortization and o/s interest for the year end )
( 30,000/15 = 2,000 )
( 6,00,000 *12%*12/12 = 72,000 )
C ) Payment of interest.
1/Jan/2018 Interest expense account ……………Dr 74,000
To Discount on bonds payable 2,000
To Cash / Bank 72,000
( Being entry for discount amortization and interest due paid as on 1/Jan/2018 )
D ) Redemption of bond at maturity date
Redemption of bond….....……………Dr. 6,00,000
Interest paid…………………………...Dr. 72,000
Discount on bonds payable…….......Dr. 2,000
To Cash / Bank 6,74,000
( Being redemption of the bond and interest paid on the maturity date )
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