Question

 

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

Answer 1

 

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.