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27 February, 20:49

Presented below are two independent situations. 1. On January 1, 2014, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.2. On June 1, 2014, Garfunkel Company issued $100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1. Required:1. For each of these two independent situations, prepare journal entries to record the following.

(a) The issuance of the bonds. (b) The payment of interest on July 1. (c) The accrual of interest on December 31.

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  1. 27 February, 21:52
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    The necessary journal entries are as follows:

    Simon company:

    Issuance:

    Dr Cash $200,000

    Cr Bonds payable $200,000

    Interest payment on July 1

    Dr Interest expense ($200,000*9%*3/12) $4500

    Cr Cash $4500

    Accrued interest on 31 December:

    Dr Interest expense ($200,000*9%*3/12) $4500

    Cr Interest payable $4500

    Garfunkel

    Issuance of bond:

    Dr Cash $105000

    Cr Bonds payable $100,000

    Cr Interest expense $5000

    Interest payment on July 1

    Dr Interest expense ($100,000*12%*6/12) $6000

    Cr Cash $6000

    Accrued interest on 31 December:

    Dr Interest expense ($100,000*12%*6/12) $6000

    Cr Interest payable $6000

    Explanation:

    The bond issued on January 1, 2014 was issued at par, hence $200,000 cash proceeds were received.

    The required journal entries are:

    Dr Cash $200,000

    Cr Bonds payable $200,000

    The second bond was issued at par plus the accrued interest, as a result, the issue price is computed thus:

    Par value $100000

    plus accrued interest to date ($100000*12%*5/12) $5000

    Issued amount $105000

    The journal entries as follows

    Dr Cash $105000

    Cr Bonds payable $100,000

    Cr Interest expense $5000
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