problem 10-8A financial statement impact of a bond Worthington Company issued $1

Question

problem 10-8A financial statement impact of a bond

Worthington Company issued $1,000,000 face value , six-year, 10% bond on July 1, 2010, when the market rate of interest was 12%. Interest payments are due every July 1, and January 1. Worthington uses a calendar year-end.


1. Prepare the journal entry to record the issuance of the bonds on July 1, 2010.
2. Prepare the adjusting journal entry on December 31, 2010, to accrue interest expense.
3. Prepare the journal entry to record the interest payment on January 1, 2011.
4. Calculate the amount of cash that will be paid for the retirement of the bonds on the maturity date.

Explanation / Answer

july1                  cash                                 $1,000,000                              Bonds payable                                      $1,000,000 2. Dec 31,2010      interest expenses              $60000                                interest payable on bonds                      $60,000 3. january 1,2011     interest payable on bonds $60,000                                     cash                                                  $60,000 4. We assume that the interest are paid on the due dates; so at the end of the term only the bond value will be redeemed so the entry for redemption is     Bonds payable                                $1,000,000                   cash                                                                      $1,000,000  

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