PROBLEM 3: On January 1, 2012 Jones Company issued bonds with a face value of $7

Question

PROBLEM 3: On January 1, 2012 Jones Company issued bonds with a face value of $750,000. The bonds carry an interest rate of 8% payable each January 1. Prepare the journal entry for the issuance assuming the bonds are issued at 96. Prepare the journal entry for the issuance assuming the bonds are issued at 10 a. b. PROBLEM 4: On April 1, Paril. Company borrows $75,000 from West Bank by signing a 6-month, 5% interest bearing note. Prepare the necessary entries below associated with the note payable on the books of Parilo Company. a. Prepare the entry on April 1 when the note was issued. b. Prepare any adjusting journal entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made.

Explanation / Answer

Solution 3:

Journal entries for the issue of bonds is as prepared below:

Year Particulars L.F Debit ($) Credit ($) a. Jan-01 Cash (750,000*.96) 7,20,000 Unamortized Bond Discount 30,000 Bond payable 7,50,000 (for bond issued at $96) Year Particulars L.F Debit ($) Credit ($) b. Jan-01 Cash (750,000*1.03) 7,72,500 Unamortized Bond Premium 22,500 Bond payable 7,50,000 (for bond issued at $103)

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