Question

FINANCIAL ACCOUNTING II

The Samson Corporation’s fiscal year ends on December 31st. On July 1, 2020, Samson authorized $1,000,000 of six-percent, eight-year mortgage bonds, which will pay interest semi-annually, on each June 30th and December 31st.

On October 1, 2022, Samson issued one-half of the bonds, at a discount of $20,700, in return for cash and a building with a fair market value of $240,000.

The discount is amortized at each interest payment date, at a rate of $300* per month. Prepare all the journal entries required for the bonds for the period July 1, 2020 through December 31, 2022.

*There are 69 months remaining in the term of the bonds (from the issuance date of October 1, 2022 until the maturity date of June 30, 2028). Amortization of the bond discount is $20,700 ÷ 69 months = $300 per month.

Answer 1

SAMSON CORPORATIONS
Journal Entries for 6% Mortgage Bonds:
Note:
1. Here assumed that all transactions are made through Bank instead of Cash as they are ofHigh value transactions. Hence instead of Cash A/c used Bank A/c.
Date	Particulars	Debit ($)	Credit ($)
31-12-2020	Interest receipt on Bonds
	Bank A/c                                                         Dr	30,000.00
	To Interest on 6% Mortgage Bonds A/c		30,000.00
	($ 1,000,000*6%*6/12)
	(Being interest received on 6% mortgage bonds for the period July, 2020 to Dec, 2020)
30-06-2021	Bank A/c                                                         Dr	30,000.00
	To Interest on 6% Mortgage Bonds A/c		30,000.00
	($ 1,000,000*6%*6/12)
	(Being interest received on 6% mortgage bonds for the period Jan, 2021 to June, 2021)
31-12-2021	Bank A/c                                                         Dr	30,000.00
	To Interest on 6% Mortgage Bonds A/c		30,000.00
	($ 1,000,000*6%*6/12)
	(Being interest received on 6% mortgage bonds for the period July, 2021 to Dec, 2021)
30-06-2022	Bank A/c                                                         Dr	30,000.00
	To Interest on 6% Mortgage Bonds A/c		30,000.00
	($ 1,000,000*6%*6/12)
	(Being interest received on 6% mortgage bonds for the period Jan, 2022 to June, 2022)
1/10/2022	Issue of one-half of Bonds at Discount*
	Bank A/c                                                         Dr	246,800.00
	(500,000+7,500-20,700-240,000)
	Building A/c*                                                    Dr	240,000.00
	Discount on issue of Bonds A/c                         Dr	20,700.00
	To Investment in 6% Mortgage Bonds A/c		500,000.00
	(1,000,000*50%)
	To Interest on Bonds A/c		7,500.00
	(1,000,000*50%*6%*3/12)
	(Being issue of Bonds including interest accrued from July, 2022 to September, 2022 at discount of $ 20,700/- & for a consideration of cash & building)
	*Here Fair Market value of the building is assumed as the Sale value)
31-12-22	Interest receipt on Bonds
	Bank A/c                                                         Dr	15,000.00
	($ 500,000*6%*6/12)
	To Interest on 6% Mortgage Bonds A/c		15,000
	(Being interest received on 6% mortgage bonds for the period July, 2020 to Dec, 2020)
31-12-22	Interest on 6% Mortgage Bonds A/c         Dr	900.00
	To Dicount on issue of Bonds A/c		900.00
	($ 300*3)
	(Being amortisation of discount on issue of Bonds)