In: Accounting
BU Curriculum Corporation issued $900,000 of 7% bonds on August 1, 2019, due on August 1, 2024. The interest is to be paid twice a year on February 1 and August 1. The bonds were sold to yield 9% effective annual interest. BU Curriculum Corporation closes its books annually on December 31. | ||||
(b) Prepare the journal entries for the following: | ||||
1. August 1, 2019 bond issue | ||||
2. Adjusting entry for December 31, 2019 (adjusting entry should cover 5 months) | ||||
3. February 1, 2020 entry | ||||
4. August 1, 2020 entry | ||||
5. Adjusting entry from December 31, 2020 |
Date | Account | Debit | Credit |
August 1, 2019 | Cash | 828,760 | |
August 1, 2019 | Discount on Bonds Payable | 71,240 | |
August 1, 2019 | Bonds Payable | 900,000 | |
Issuance of Bonds | |||
December 31, 2019 | Interest Expense | 12,431 | |
December 31, 2019 | Bond Disc | 1,931 | |
December 31, 2019 | Discount on Bonds | 10,500 | |
Adjusting Entry |
Need assistance with formulas for this section.
a] | Price of the bonds = 900000*0.6439+900000*3.5%*7.9127 = | $ 828,760 | |||
BOND DISCOUNT AMORTIZATION TABLE: | |||||
Date | Interest Expense | Interest Paid | Discount Amortization | Carrying Value | |
1-Aug-19 | $ 828,760 | ||||
1-Feb-20 | $ 37,294 | $ 31,500 | $ 5,794 | $ 834,554 | |
1-Aug-20 | $ 37,555 | $ 31,500 | $ 6,055 | $ 840,609 | |
1-Feb-21 | $ 37,827 | $ 31,500 | $ 6,327 | $ 846,937 | |
1-Aug-21 | $ 38,112 | $ 31,500 | $ 6,612 | $ 853,549 | |
1-Feb-22 | $ 38,410 | $ 31,500 | $ 6,910 | $ 860,458 | |
1-Aug-22 | $ 38,721 | $ 31,500 | $ 7,221 | $ 867,679 | |
1-Feb-23 | $ 39,046 | $ 31,500 | $ 7,546 | $ 875,225 | |
1-Aug-23 | $ 39,385 | $ 31,500 | $ 7,885 | $ 883,110 | |
1-Feb-24 | $ 39,740 | $ 31,500 | $ 8,240 | $ 891,350 | |
1-Aug-24 | $ 40,111 | $ 31,500 | $ 8,611 | $ 899,960 | |
b] | |||||
1] | August 1, 2019: | ||||
Cash | $ 828,760 | ||||
Discount on bonds payable | $ 71,240 | ||||
Bonds payable | $ 900,000 | ||||
2] | December 31, 2019: | ||||
Interest expense [828760*4.5%*5/6] | $ 31,079 | ||||
Discount on bonds payable | $ 4,829 | ||||
Interest payable [900000*3.5%*5/6] | $ 26,250 | ||||
3] | February 1, 2020: | ||||
Interest expense [828760*4.5%*1/6] | $ 6,215 | ||||
Interest payable | $ 26,250 | ||||
Discount on bonds payable | $ 966 | ||||
Cash [900000*3.5%] | $ 31,500 | ||||
4] | August 1, 2020: | ||||
Interest expense | $ 37,555 | ||||
Discount on bonds payable | $ 6,055 | ||||
Cash | $ 31,500 | ||||
5] | December 31, 2019: | ||||
Interest expense [37827*5/6] | $ 31,523 | ||||
Discount on bonds payable | $ 5,273 | ||||
Interest payable [900000*3.5%*5/6] | $ 26,250 |