PART B: On January 1, 2017, Borse Company issued 7.5%, 5-year bonds with a face
ID: 2736094 • Letter: P
Question
PART B: On January 1, 2017, Borse Company issued 7.5%, 5-year bonds with a face value of $1,200,000. The bonds pay interest semi-annually on July 1 and January 1. Fiscal year end is December 31.
Instructions
b. Assuming the bonds are issued at 103, [1] prepare journal entries to record the (a) issuance of the bonds, (b) accrual of interest and amortization and December 31, 2017 and 2018, and (c) payment of the interest on July 1, 2017 and 2018, on January 1, 2018, and on January 1, 2019. [2] Illustrate how the bonds AND related accounts would be reported on the December 31 balance sheet for 2017 and 2018.
Explanation / Answer
Ans:
Prepare journal entries on January 1, 2017 Borse company issued at 7.5%:
Date
Particulars
Debit
Credit
01-01-2017
Bond interest paid Semi-annually
$ 1,94,826.00
Bond issued
$ 1,94,826.00
01-07-2017
Bond interest paid Semi-annually
$ 1,94,826.00
Bond issued
$ 1,94,826.00
Prepare journal entries on January 1, 2018 Borse company issued at 103%:
Date
Particulars
Debit
Credit
01-01-2017
Bond interest paid Semi-annually
$ 26,75,569.00
Bond issued
$ 26,75,569.00
01-07-2017
Bond interest paid Semi-annually
$ 26,75,569.00
Bond issued
$ 26,75,569.00
Step-2:
In 2017 the Borse Company issued at 7.5% for 5years
The par value = $1,200,000
In 2017 the issued at 7.5% for 5years
= $90,000 * 4.3294 = $389,646 / 2 = $194,823 for semi-annual
In 2018 the issued at 103% for 5years
= $1,236,000 * 4.3294 = $5,351,138 / 2 = $2,675,569
Date
Particulars
Debit
Credit
01-01-2017
Bond interest paid Semi-annually
$ 1,94,826.00
Bond issued
$ 1,94,826.00
01-07-2017
Bond interest paid Semi-annually
$ 1,94,826.00
Bond issued
$ 1,94,826.00
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