Question

 

Question: Journalizing bond issuance and interest payments

On January 1, 2018, Roberts Unlimited issues 8%, 20-year bonds payable with a

face value of $240,000. The bonds are issued at 104 and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on January 1, 2018.

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

June 30, 2018.

3. Journalize the semiannual interest payment and amortization of bond premium on

December 31, 2018.

4. Journalize the retirement of the bond at maturity, assuming the last interest payment

has already been recorded. (Give the date).

Answer 1

 

Step 1: Definition of bonds issue on premium

When the bonds are issued greater than the market interest rate, then the bonds are known as the bond issue on premium.

Step 2: Journal entry for the case of the bonds

Date	Particulars	Debit	Credit
January 1, 2018	Cash	$249,600
	Premium on Bonds Payable		$9,600
	Bonds Payable		$240,000
	(Being entry for the issue of bonds)

 

Step 3: Journal entry for the interest expense

Date	Particulars	Debit	Credit
June 30, 2018	Interest Expense	$9,600
	Premium on Bonds	$240
	Cash		$9,840
	(To record the payment of interest)

 

Step 4: Journal entry for the interest expense

Date	Particulars	Debit	Credit
December 31, 2018	Interest Expense	$9,600
	Premium on Bonds	$240
	Cash		$9,840
	(To record the payment of interest)

 

Step 5: Journal entry for the retirement

Date	Particulars	Debit	Credit
January 1, 2038	8% Bonds Payable	$240,000
	Cash		$240,000
	(To record the retirement of the bond)

 

 

 

 

 

 

 

The bonds payable account is debited with $240,000, and the cash account is credited with $240,000.