Doyle company issued $500,000 of 10 year, 7% Bonds on January 1st 2016. The bond

Question

Doyle company issued $500,000 of 10 year, 7% Bonds on January 1st 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 issued in land. The land was leased for an annual $125,000 of cash Revenue which was collected on December 31st of each year, beginning December 31st 2016.

Required

Prepare the journal entries for these events, and post them to the accounts for 2016 and 2017.

Prepare the income statement come on balance sheet, and statement of cash flows for 2016 and 2017.

Explanation / Answer

1 january 2016 Cash Dr.$500000

To Bond payable $500000

1. january 2016 Land Dr.$ $500000

To cash $500000

(Being land purchased from the proceeds)

31December 2016 and 2017 Interest expesne($500000*7%) Dr.$35000

To Accrued interest expense $35000

(Being interest due)

31December 2016 and 2017 Accrued interest expense Dr.$35000

To cash $35000

(Being interest paid)

31 December 2016 and 2017 Cash Dr.$125000

To Rental(lease) income $125000

(Being annual income of125000 of cash revenue)

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