Question

Sheridan Company issued $440,000 of 5%, 10-year bonds on January 1, 2021, at face value. Interest is payable annually on January 1, 2022.

Required:

Assuming Sheridan has a September 30 year end, prepare the adjusting journal entry needed on September 30, 2021, and prepare the journal entry to record the interest payment on January 1, 2022, assuming reversing entries have not been used.

Answer 1

Sheridon company has issued a 5% 10 year bonds having value of $ 440,000 on january 1 at face value. Interest is payable annually on january 1, 2022.

Here the interest is paid annually, but the year end is on september 30, , 2021 so interest needs to be accrued as on 30th september for the 6 months of usage of bonds i.e from Jan to sep.

Interest amount = Bonds face value * Rate * 6/12 = $ 440,000 * 5% * 6/12 = $ 11,000.

Thus the Journal entry at the closing date of 30th septemer and on payment date 1st january 2022 will be as follows:

Date	Accounts and Explanation	Debit	Credit
2021
Sep . 30	Interest Expenses	$11,000
	Interest Payable		$11,000
	( To record interest payable on bonds)
2022
Jan . 1	Interest Expenses	$11,000
	Interest Payable	$11,000
	Cash Account		$22,000
	( To record payment of interest expenses)