Question

At the end of 2017, Majors Furniture Company failed to accrue $68,500 of interest expense that accrued during the last five months of 2017 on bonds payable. The bonds mature in 2029. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2018, when the semiannual interest was paid:

Interest expense	82,200
Discount on bonds payable		2,700
Cash		79,500

   
Required:
1-a. Prepare any journal entry necessary to correct the error as well as any adjusting entry for 2018 related to the situation described. (Ignore income taxes.)
1-b. Prepare journal entry that should have been recorded, if done correctly to start.

Answer 1

1-a.journal entries to correct the error as well as adjusting entry:

event	general journal	debit	credit
1	retained earnings	68,500
	...........Interest expense a/c		68,500
	(correcting entry to rectify retained earnings and interest expense which are overstated)
2	interest expense	68,500
	............To discount on bonds payable		2,250
	...........To interest payable		66,250
	(adjusting entry at end of 2018)

1-b.

1	interest expense	68,500
	............To discount on bonds payable		2,250
	............To interest payable		66,250
	(adjusting entry at end of 2017)
2	interest expense (82,200*1/6)	13,700
	interest payable	66,250
	...........to discount on bonds payable		450
	...........To cash a/c		79,500
	(to pay interest)