Question

1. Prudence Corporation purchased a machine for $460,000 on September 1, 2019, by paying 20% down payment in cash and for the balance amount signed a 6%, 10-month note payable for the balance amount. Interest and principle will be paid back together at the end of the note.

Prepare journal entries to record:

1. the purchase of the delivery truck,
2. the adjusting journal entry to record the accrued interest on December 31,
3. and the payment of the note at maturity along with the interest.

2. On January 1, 2019, Prudence Corp. issued $250,000 face value, 5-year bonds, with a coupon rate of 8%. Coupon is paid semi-annually on June 30 and December 31 each year. Prepare the necessary journal entries to record the:

1. issuance of the bonds on Jan 1, 2019
2. payment of first coupon payment on June 30, 2019.

Answer 1

1.

Prudence Corporation purchased a machine for $460,000 on September 1, 2019, for which it pays 20% down payment i.e $ 92,000 (460,000*20%). and remaining i.e $ 368,000 (460000-92000). is 10 month note payable.

The year end is 31st december , so interest of 4 months ( september to december ) will be accrued in current year as an adjusting entry. The interest amount = $368000 * 6% * 4/12 = $7,360.

Further at the time of maturity i.e on 1st july the interest amount will be = $ 368000 * 6%*10/12 = 18,400 out of which $7360 interest is actually charged, now only interest expenses to be charged is remining of $ 11040.

(Note : Here in question in starting marchine is given and later delivery truck is given , i am considering machine here stident can take delivery truck also only the first debit entry will change instead of machine put delivery truck there.)

The journal entries are as follows:

Date	Accounts and Explanation	Debit ($)	Credit($)
2019
sep .1	Machine	460000
	Cash account		92000
	6% Note payable		368000
	( To record Purchase of machine on cash and credit )
2019
Dec 31.	Interest Expenses	7360
	Interest Payable		7360
	( To record interst expenses adjusting entry)
2020
July .1	6% Note payable	368000
	Interest Expenses	11040
	Interest Payable	7360
	Cash Account		386400
	( To record Maturity of note payable along with interest

2.

On January 1, 2019, Prudence Corp. issued $250,000 face value, 5-year bonds, with a coupon rate of 8%. Coupon is paid semi-annually on June 30 and December 31 each year.

The coupon interest amount on every 6 months = $ 250000 * 8% *6/12 = $ 10,000.

Date	Accounts and Explanation	Debit ($)	Credit($)
2019
Jan-01	Cash account	250000
	Bond Payable		250000
	( To record Issuance of bonds)
2019
June 30.	Bond Interest expenses	10000
	Cash Account		10000
	( To record payment of bond interest)