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Buzzy Company sold $400,000 worth of 10%, ten year bonds on July1st, 2019, at a time...

Buzzy Company sold $400,000 worth of 10%, ten year bonds on July1st, 2019, at a time when the market rate of interest on similar investments was 12%. The semiannual bonds pay interest on December 31st and June 30th .Using the interest method of bond amortization, journalize the payments of interest on December 31, 2019 and June 30, 2020

Expert Solution

Here we assume all the bonds are semiannual bonds which pay interest to bond holders semi annually i.e on 31st December and 30 June

We are asked to journalize the interest giving transactions

1st the interest is paid on 31st December 2019 for 6 months as the bonds are issued on 1st July 2019

Interest = $400000×10/100×6/12 = $20000

Next interest is paid on 30 july 2020 for 6 months

Interest = $400000×10/100×6/12 = $20000

Journalist entries

31 dec 2019. Interest on bonds a/c ..........Dr $20000

To bond holders a/c. $20000

Profit and loss a/c ................Dr $20000

To interest in bonds a/c. $20000

Bond holders a/c...................Dr $20000

To cash a/c. $20000

30 june 2020 . Interest on bonds a/c..........Dr $20000

To bond holders a/c. $20000

Profit and loss a/c ................Dr $20000

To interest in bonds $20000

Bond holders a/c ................Dr $20000

To cash a/c. $20000

These are the journal entries of the given case

Thank you.

ekkarill92 answered 1 hour ago

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