On March 1, 2016, Reeves Company issued five-year, 10%, $800,000 face value bond

Question

On March 1, 2016, Reeves Company issued five-year, 10%, $800,000 face value bonds at par plus accrued interest. The bonds were dated January 1, 2016, and pay interest semiannually each July 1 and January 1..

Required:

1-Prepare the journal entry for the bond issuance on March 1, 2016.

2-Prepare the journal entries to record the interest paid/accrued on July 31, 2016 and December 31, 2016.

3-How much interest expense, in total, will Reeves Company recognize in the year 2016?

Please show calculations; thanks.

Explanation / Answer

Journal Entries Date Accounting titles & Explanations Debit Credit 1-Mar Cash 813,333 Bonds payable 800000 Interest payable (800,000*10%*2/12) 13333 1-Jul interest expense (800000*10%*4/12) 26,667 interest payable 13,333 cash (800,000*10%*6/12) 40000 31-Dec interest expense 40,000 interest payable 40,000 3) total interest expense recognized in year 2016 26,667+40,000 66667

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