Question

This Question Contains two parts. Students have to solve both the parts.

(A). Gulf Stone company issued OMR 400000 of 12 % bonds of 100 OMR each on January 1 2011. The bonds are due January 1 ,2016 with the interest payable each July 1 and January 1. The bonds are issued at face value . Prepare Gulf Stone journal entry for (A) January issuance (B) July 1 Interest Payment .

Assume the bonds are issued at OMR 111 to yield 9 %. Prepare the journal entries (C) January 1 for issue (D) July 1 for interest payment (E) December 31 for interest amount due.

Answer 1

A	Bond issued at facevalue
Jan-01	Account titles and explanation	Debit	Credit
	Cash	$400,000
	Bonds payable		$400,000
	(Bonds issued at facevalue)
Jul-01	Interest expense	$24,000
	Cash		$24,000	($400,000*12/2%)
	(interest expense booked for first payment)

2	Bond issued at Premium
	Account titles and explanation	Debit	Credit
Jan-01	Cash	$444,000		(4000*111)
	Premium on bonds payable		$44,000
	Bonds payable		$400,000
	(Bonds issued at premium)
Jul-01	Interest expense	$19,980		($444,000*9/2%)
	Premium on bonds payable	$4,020
	Cash		$24,000	($400,000*12/2%)
	(Interest expense booked for first payment)
Dec-31	Interest expense	$19,799		($444,000+$19,980-$24,000)*9/2%)
	Discount on bonds payable	$4,201
	Interest payable		$24,000
	(Interest expense booked for second payment)

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