Question

In: Accounting

Wilkes Mutual Insurance Company issued a $100,000, 5%, 10-year bond payable at 111 on January 1, 2018. Interest is paid semiannually on January 1 and July 1.

 

Question:  Journalizing bond transactions

Wilkes Mutual Insurance Company issued a $100,000, 5%, 10-year bond payable at

111 on January 1, 2018. Interest is paid semiannually on January 1 and July 1.

Requirements

1. Journalize the issuance of the bond payable on January 1, 2018.

2. Journalize the payment of semiannual interest and amortization of the bond

discount or premium on July 1, 2018

Solutions

Expert Solution

 

Step 1: Definition of the bond issue on premium

When the bonds are issued at more than the market interest rate is known as bonds issued at a premium.

Step 2: Entry for the issue of bond

Date

Particulars

Debit

Credit

January 1, 2018

Cash

$111,000

 

 

5% Bonds Payable

 

$111,000

 

(Being Entry of the issue of bonds)

 

 

 

Date

Particulars

Debit

Credit

July 1, 2018

Interest Expense

$1,950

 

 

Premium on Bonds Payable

$550

 

 

Cash

 

$2,500

 

(Being Entry of the payment of interest)

 

 

 

 


 

The cash account is debited with $111,000 and the 5% bonds payable account is credited with $111,000.

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