Question

On January 1, 2017, Brussels Enterprises issues bonds at par dated January 1, 2017, that have a $2,600,000 par value, mature in 4 years, and pay 9% interest semiannually on June 30 and December 31.

1. Record the entry for the issuance of bonds for cash on January 1, 2017.
2. Record the entry for the first semiannual interest payment on June 30, 2017.
3. Record the entry for the second semiannual interest payment on December 31, 2017.
4. Record the entry for the maturity of the bonds on December 31, 2020 (assume semiannual interest is already recorded).
  

Answer 1

Answer :-

Journal entries in the books of Brussels Enterprises.

When a company issues bonds , it incurs long-term liability .

#Interest = Facevalue × interest rate × frequency of the year.

Given, Par value = Face value = $26,00,000.

Rate =9% ; Frequency = Semi-annual = 6 months i.e twice a year.

Interest for annual = $26,00,000 × 9% = $234,000.

Interest for 6 months i.e semiannual = $234,000÷2 = $117,000.

(1)

Date :- 1 january 2017

Cash A/c Dr $2,600,000

To Bonds Payable A/c $2,600,000

{Being bonds issued at facevalue }

(2)

Date :- 30 jun 2017

Bond interest Expense A/c Dr $117,000

To Cash A/c $117,000

{Being semi annual Bond interest paid }

(3)

Date :- 31 dec 2017

Bond interest expense A/c Dr $117,000

To Cash A/c $117,000

{Being semiannual bond interest paid on 31 dec 19 }

(4)

Date :- 31 Dec 2020

Bonds Payable A/c Dr $2,600,000

To Cash A/c $2,600,000

{Being bonds matured and repaid }

# Assumed that investors were paid on the date of maturity.

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