Problem 10-4A On October 1, 2016, Sheffield Corp. issued $900,000, 9%, 10-year b
ID: 2514305 • Letter: P
Question
Problem 10-4A On October 1, 2016, Sheffield Corp. issued $900,000, 9%, 10-year bonds at face value. The bonds were dated October 1, 2016, and pay interest annually on October 1. Financial statements are prepared annually on December 31 Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Oct. 1, 2016 Prepare the adjusting entry to record the accrual of interest on December 31, 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31, 2016Explanation / Answer
Answer
Bonds Value
$900,000
Interest rate
9%
Annual Interest
$81,000
Interest from Oct to Dec [3 months] [81000 x 3/12]
$20,250
Interest from Jan to Sept [81000 x 9/12]
$60,750
Date
Accounts titles
Debit
Credit
Oct 1, 2016
Cash
$ 9,00,000.00
Bonds payable
$ 9,00,000.00
(bonds issued)
Dec 31, 2016
Interest expenses
$ 20,250.00
Interest payable
$ 20,250.00
(interest for 3 months accrued)
Oct 1 , 2017
Interest payable
$ 20,250.00
Interest expense
$ 60,750.00
Cash
$ 81,000.00
(annual interest paid)
Dec 31, 2017
Interest expenses
$ 20,250.00
Interest payable
$ 20,250.00
(interest for 3 months accrued)
Jan 1, 2018
Interest payable
$ 20,250.00
Cash
$ 20,250.00
(interest accrued, now paid)
Jan 1, 2018
Bonds Payable
$ 9,00,000.00
Premium on redemption
$ 18,000.00
Cash
$ 9,18,000.00
(bonds redeemed)
Balance Sheet (Partial)
as at Dec 31, 2016
Long term Liabilities
Bonds payable
$ 9,00,000.00
Current Liabilities
Interest payable
$ 20,250.00
Bonds Value
$900,000
Interest rate
9%
Annual Interest
$81,000
Interest from Oct to Dec [3 months] [81000 x 3/12]
$20,250
Interest from Jan to Sept [81000 x 9/12]
$60,750
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