Question

On May 1, 2019, Concord Corporation issued $660,000, 7%, 5-year bonds at face value. The bonds were dated May 1, 2019, and pay interest annually on May 1. Financial statements are prepared annually on December 31.

Prepare the journal entry to record the issuance of the bonds.

Prepare the adjusting entry to record the accrual of interest on December 31, 2019.

Show the balance sheet presentation on December 31, 2019.

Prepare the journal entry to record payment of interest on May 1, 2020

Prepare the adjusting entry to record the accrual of interest on December 31, 2020.

Assume that on January 1, 2021, Concord pays the accrued bond interest and calls the bonds at 101. Record the payment of interest and redemption of the bonds

Answer 1

Required entries are as prepared below:

Year	Particulars	L.F	Debit ($)	Credit ($)
2019
May-01	Cash		660,000
	Bonds payable			660,000
	(For bonds issued at face value)
Dec-31	Interest Expense (660,000*7%*8/12)		30,800
	Interest Payable			30,800
	(For interest accrued)
2020
May-01	Interest Expense (660,000*7%*4/12)		15,400
	Interest Payable		30,800
	Cash			46,200
	(For Interest paid)
Dec-31	Interest Expense (660,000*7%*8/12)		30,800
	Interest Payable			30,800
	(For interest accrued)
2021
Jan-01	Interest Payable		30,800
	Bonds Payable		660,000
	Loss on retirement of bond		6,600
	Cash (660,000*1.01 +30,800)			697,400
	(For Interest paid)

Concord Corporation
Balance Sheet (Partial)
At December 31, 2019
Current Liabilities:
Interest payable		30,800
Long-term liabilities
Bonds payable	660,000	660,000
Total liabilities		690,800