A company issued $10,000,000 of 8% bonds on May 1, 2015 and received cash totali
ID: 2464684 • Letter: A
Question
A company issued $10,000,000 of 8% bonds on May 1, 2015 and received cash totaling $8,872,628. The bonds pay interest semiannually on May 1 and November 1. The maturity date on these bonds is November 1, 2023. The company uses the effective-interest method of amortizing discounts and premiums. The bonds were sold to yield an effective-interest rate of 10%.
Management prepared the following schedule:
Interest Cash Discount Carrying
Date Expense Interest Amortization Value of Bonds
5/1/15 $8,872,628
11/1/15 $443,631 $400,000 $43,631 8,916,259
5/1/16 445,813 400,000 45,813 8,962,072
Using the T-account , prepare the journal entries, in T-account format, to recognize the:
a.issuance of the bond on May 1, 2015
b.accrual of interest & related amortization on October 31, 2015
c.payment of interest on November 1, 2015
d.accrual of interest & related amortization on April 30, 2016
e.payment of interest on May 1, 2016
Explanation / Answer
Date
Account titles and explanation
Debit
Credit
May 1, 2015
Cash
$ 8,872,628.00
Discount on issue of bonds
$ 1,127,372.00
Bonds payable
$ 10,000,000.00
October 31, 2015
Interest expense
$ 443,631.00
Interest payable
$ 400,000.00
Discount on issue of bonds
$ 43,631.00
November 1, 2015
Interest payable
$ 400,000.00
Cash
$ 400,000.00
April 30, 2016
Interest expense
$ 445,813.00
Interest payable
$ 400,000.00
Discount on issue of bonds
$ 45,813.00
May 1, 2016
Interest payable
$ 400,000.00
Cash
$ 400,000.00
Date
Account titles and explanation
Debit
Credit
May 1, 2015
Cash
$ 8,872,628.00
Discount on issue of bonds
$ 1,127,372.00
Bonds payable
$ 10,000,000.00
October 31, 2015
Interest expense
$ 443,631.00
Interest payable
$ 400,000.00
Discount on issue of bonds
$ 43,631.00
November 1, 2015
Interest payable
$ 400,000.00
Cash
$ 400,000.00
April 30, 2016
Interest expense
$ 445,813.00
Interest payable
$ 400,000.00
Discount on issue of bonds
$ 45,813.00
May 1, 2016
Interest payable
$ 400,000.00
Cash
$ 400,000.00
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