Question

On January 1, 2014, Park Corporation sold a $606,000, 6 percent bond issue (8 percent market rate). The company does not use a discount account. The bonds were dated January 1, 2014, pay interest each June 30 and December 31, and mature in five years. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Required:
1.	Prepare the journal entry to record the issuance of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

      

2.	Prepare the journal entry to record the interest payment on June 30, 2014. Use effective-interest amortization. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

      

3.	Show how the bond interest expense and the bonds payable should be reported on the June 30, 2014, income statement and balance sheet.

      
      

Answer 1

1.) Journal entry to record the issuance of the bonds :

Bank Account (Debit) $ 606000

To 6% bond Payable account (Credit) $606000

(To record bonds issued at face value.)

2.)Journal entry to record the interest payment on June 30, 2014

Bond Interest expense account (Debit) : $18180

To 6% Bonds Payable account(Credit) : $18180

(To record semiannual interest($606,000 X 6%/2) to be paid on June 30, 2014)

6% Bonds Payable account(Debit) : $18180

To Cash/Bank account (Credit) : $18180

(To semiannual interest payment on bond on June 30, 2014)

3. Disclosure of bond interest expense and the bonds payable on the June 30, 2014, income statement and balance sheet.

Income statement : Bond interest expense should be recognised as an expesne and this should be debit to Income Statement account.

Balance Sheet : bonds payable Should be shown as Non-Current Liabilties in liabilties under the Balance sheet.