The Square Foot Grill, Inc. , issued $350,000 of 10-year, 7 percent bonds on Jul

Question

The Square Foot Grill, Inc. , issued $350,000 of 10-year, 7 percent bonds on July 1, 2016, at 102. Interest is payable in cash semiannually on June 30 and December 31. The straight-line method is used for amortization.

a. Prepare the journal entries to record issuing the bonds and any necessary journal entries for 2016 and 2017. Post the journal entries to T-accounts. Prepare any necessary closing entries for 2016.

b. Prepare the liabilities section of the balance sheet at the end of 2016 and 2017

c. What amount of interest expense will Square Foot report on the financial statements for 2016 and

Explanation / Answer

a) 01-Jul-16 Cash 357000 (350000*102%)          Premium on bonds payable 7000 (350000*2%)          Bonds payable 350000 31-Dec-16 Interest expense 11900 Premium on bonds payable 350 (7000/20)             Cash 12250 (350000*7%*6/12) 30-Jun-17 Interest expense 11900 Premium on bonds payable 350 (7000/20)             Cash 12250 (350000*7%*6/12) 31-Dec-17 Interest expense 11900 Premium on bonds payable 350 (7000/20)             Cash 12250 (350000*7%*6/12) b) Liabilities section 2016 2017 Bonds payable 350000 350000 Premium on bonds payable 6650 5950 c) 2016 2017 Interest expense 11900 23800 (11900+11900)

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