MGMT 202 ICE 4 Part A: Entity A issued $400,000, 10%, 10-year bonds on January 1

Question

MGMT 202 ICE 4 Part A: Entity A issued $400,000, 10%, 10-year bonds on January 1, 2018, at 98 Interest s payable annually on December 31. Entity A uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all journal entries made in 2018 related to the bond issue and a partial balance sheet showing the bonds at December 31. Part B: On September 1, Entity B borrows $80,000 from New National Bank by signing a 6-month, 6%, interest-bearing note. Prepare the necessary entries below associated with the note payable on the books of Entity B (a) Prepare the entry on September 1 when the note was issued (b) Prepare any adjusting entries necessary on December 31 in order to prepare the financial statements. Assume no other interest accrual entries have been made. (c) Prepare the entry to record payment of the note at maturity

Explanation / Answer

SOLUTION

Part A

Journal Entries

Partial balance sheet-

Date Accounts title and Explanations Debit ($) Credit ($) Jan.1 Cash ($400,000*98%) 392,000 Discount on bonds payable ($400,000*2%) 8,000 Bonds Payable 400,000 (To record issuance of bonds) Dec. 31 Interest Expense 40,800 Cash (400,000*10%) 40,000 Dicount on bonds payable (8,000/10) 800

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