Question

PREPARING JOURNAL ENTRIES

Legend Company uses the straight-line method for amortization of all bond premium & discounts. During fiscal year 2018 Legend had the following bond payable transactions:

January 2, issued ten, $1,000 bonds at 101. These 5-year bonds are dated January 1, 2017. The contract interest rate is 6%.  Interest is payable semi-annual on January 1 and July 1.

July 1, Legend issued $400,000 of 10%, 10-year bonds.  The bonds are dated January 1, 2017 were issued at 90, and pay interest on July 1 and January 1.

October 1, Legend issued 10-year bonds $10,000 face value bonds for $10,860 cash. The bonds have a stated rate of 8%. Interest is payable on October 1 and April 1.

Use this information to prepare General Journal entries for the three bonds issued and any interest accruals and payments for the fiscal year 2018. (Round all calculations to nearest whole dollar.)

Answer 1

TRANSACTION 1
DATE	JOURNAL ENTRY	DEBIT (IN $)	CREDIT (IN $)
JAN 2 2017	BANK A/C DR.	10,10,000.00		(1000*101*10)
	TO BONDS PAYABLE A/C		10,00,000.00
	TO PREMIUM ON BONDS PAYABLE A/C		10,000.00
JULY 1 2018	INTEREST EXPENSE A/C DR.	29,000.00		(30000-1000)	WE HAVE SUBTRACTED THE PREMIUM AMOUNT FROM THE INTEREST EXPENSE
	PREMIUM ON BONDS PAYABLE A/C DR.	1,000.00
	TO BANK A/C		30,000.00
JAN 1 2019	INTEREST EXPENSE A/C DR.	29,000.00
	PREMIUM ON BONDS PAYABLE A/C DR.	1,000.00
	TO BANK A/C		30,000.00
TRANSACTION 2
DATE	JOURNAL ENTRY	DEBIT (IN $)	CREDIT (IN $)
JAN 1 2017	BANK A/C DR.	3,60,000.00		(4000*90)
	DISCOUNT ON BONDS PAYABLE A/C DR.		40,000.00
	TO BONDS PAYABLE A/C		4,00,000.00
JULY 1 2018	INTEREST EXPENSE A/C DR.	22,000.00
	TO DISCOUNT ON BONDS PAYABLE A/C		2,000.00
	TO BANK A/C		20,000.00
JAN 1 2019	INTEREST EXPENSE A/C DR.	22,000.00
	TO DISCOUNT ON BONDS PAYABLE A/C		2,000.00
	TO BANK A/C		20,000.00
TRANSACTION 3
DATE	JOURNAL ENTRY	DEBIT (IN $)	CREDIT (IN $)
OCT 1 2018	BANK A/C DR.	10,860.00
	TO BONDS PAYABLE A/C		10,000.00
	TO PREMIUM ON BONDS PAYABLE A/C		860.00
MARCH 31 2019	INTEREST EXPENSE A/C DR.	357.00		(400-37)
	PREMIUM ON BONDS PAYABLE A/C DR.	43.00
	TO INTEREST PAYABLE A/C		400.00
CALCULATION OF SEMI ANNUAL INTEREST
SITUATION NO.	FACE VALUE(IN $)	RATE	INTEREST AMOUNT(IN $)	SEMI ANNUAL(IN $)
1	10,00,000.00	6%	60,000.00	30,000.00
2	4,00,000.00	10%	40,000.00	20,000.00
3	10,000.00	8%	800.00	400.00
AMMORTISATION OF PREMIUM/DISCOUNT
SITUATION NO.	PREMIUM/DISCOUNT(IN $)	NO. OF YEARS	YEARLY AMMORTISATION(IN $)	SEMI ANNUAL(IN $)
1	10,000.00	5	2,000.00	1,000.00
2	40,000.00	10	4,000.00	2,000.00
3	860.00	10	86.00	43.00