The Sage Company issued $340,000 of 11% bonds on January 1, 2017. The bonds are

Question

The Sage Company issued $340,000 of 11% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value.

Prepare Sage’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

No.

Date

Account Titles and Explanation

Debit

Credit

No.

Date

Account Titles and Explanation

Debit

Credit

(a)

Jan. 1, 2017July 1, 2017Dec. 31, 2017

(b)

Jan. 1, 2017July 1, 2017Dec. 31, 2017

(c)

Jan. 1, 2017July 1, 2017Dec. 31, 2017

Explanation / Answer

a.

Issue of bonds:

While issuing, cash would be debited because of increasing current asset; and bonds payable would be credited because of increasing long-term liability.

Journal

Date

Account titles and explanation

P.ref

Debit

Credit

1/1/2017

Cash

$340,000

Bonds payable

$340,000

To record issue of bonds at par

b.

Interest payment:

In this case, interest expense would be debited because of chargeability; and cash would be credited because of decreasing current asset.

Since the payment is semiannual, the amount should be multiplied by 1/2 .

Amount = Par value × Coupon rate × ½

            = $340,000 × 11% × 0.5

            = $18,700

Journal

Date

Account titles and explanation

P.ref

Debit

Credit

1/7/2017

Interest expense

$18,700

Cash

$18,700

To record payment of semiannual interest at 11% coupon rate

c.

Adjusting entry:

At the year-end, interest expense should be debited because of charging the other half-yearly interest; and interest payable should be credited, since the interest is not yet paid and creating liability obligation.

Amount = Par value × Coupon rate × ½

            = $340,000 × 11% × 0.5

            = $18,700

Journal

Date

Account titles and explanation

P.ref

Debit

Credit

31/12/2017

Interest expense

$18,700

Interest payable

$18,700

To record liability for semiannual interest at 11% coupon rate

Date

Account titles and explanation

P.ref

Debit

Credit

1/1/2017

Cash

$340,000

Bonds payable

$340,000

To record issue of bonds at par

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.