Question

Holden Company issued the following bonds: Issue date – January 1, 2015. Maturity date – January 1, 2020. Par value – $100,000.

Market interest rate at time of issue – 10% annually. Stated interest rate – 9%. Issue price – $96,149. Interest paid – 4.5% semiannually, first on July 1, 2015.

Assume Dec. 31 is the fiscal year-end.

a. Prepare the journal entry to record the issuance of the bonds on Jan. 1, 2015.

b. Prepare the journal entries to record the interest expenses on July 1, 2015, and Dec. 31, 2015.

c. Prepare the journal entry to record the interest payment on Jan. 1, 2016.

Answer 1

--All the journal entries, as asked, along with workings

Date	Accounts title	Debit	Credit	Working
01-Jan-15	Cash	$96,149.00		Cash received
	Discount on Bonds Payable	$3,851.00		100000 - 96149
	Bonds Payable		$100,000.00	Face Value
	(Bonds issued)
01-Jul-15	Interest Expense	$4,807.45		96149 x 10% x 6/12
	Discount on Bonds Payable		$307.45	4807.45 - 4500
	Cash		$4,500.00	100000 x 9% x 6/12
	(Interest paid in cash)
31-Dec-15	Interest Expense	$4,822.82		(96149 + 307.45) x 10% x 6/12
	Discount on Bonds Payable		$322.82	4822.82 - 4500
	Interest Payable		$4,500.00	100000 x 9% x 6/12
	(Interest accrued, due to be paid)
01-Jan-16	Interest payable	$4,500.00
	Cash		$4,500.00
	(Interest accrued now paid)