Question

In February 2019 a corporation issued a 10,000,000, 10 year, 3% installment note to purchase a building. ( Ricky's Store August 2019). The note had payments of $2,500,000 due on February 20 of each year for the next 15 years.

1) Prepare the adjusting journal entry to accrue interest on November 20, 2019.

2) Show the correct account(s) and correct amount(s) and where it will appear on a multiple-step income statement for the year ending November 20, 2019.

3) Show the correct account(s) and correct amount(s) and where they will appear on a classified balance sheet prepared dated November 20, 2019.

4) On April 16, 2020 a corporation issued $35,000,000 of 25-year, 2.50% bonds, for 94.5. (Ricky's Store August 2019) Interest is payable semi-annually on October 28 and June 15. Present entries, in proper form, to record the following transactions (2-4):

Transaction/event:
1.) The first interest payment.
2.) Amortization by the straight-line method of the first interest payment and expense.
3.) Explain what “94.5” means in issuing these bonds.
4.) Issuance of bonds.

Answer 1

Solution:
1	Adjusting journal entry
Date	Account titles & explanations	Debit	Credit
20-Nov-19	Interest expense(893,346*9/12)	671,509
	Interest payable		671,509
	(Being accrued interst expense recorded)
Date	Cash paid	Interest Exp	Principal	Carrying value
20-Feb-19				29,844,850
20-Feb-20	2,500,000	895,346	1,604,655	28,240,196
20-Feb-21	2,500,000	847,206	1,652,794	26,587,401
Annual Installment                                                  2,500,000
P.V.factor	3% , for 15 years 11.93794
P.V.note	29,844,850
Interest	3% of 29,844,850 = 895,345.50
2	Multiple-Step
	Income Statement
	For the year Ending November 20,2019
	Other expenses and income
	Interest expense	671,509
3	Classified balance sheet
	As on November 20,2019
	Current liabilities
	Interest payable	671,509
	Long term Liabilities
	Notes payable[29,844,850-(1,604,655*9/12)	28,641,359
	Please upvote , if found the answer useful.
	For any clarification, Feel free to reach at comment Section