Question

In: Accounting

The board of directors of Allen Services Inc. authorized the issuance of $400,000 face value, 20-year,...

The board of directors of Allen Services Inc. authorized the issuance of $400,000 face value, 20-year, 6 percent bonds dated April 1, 2019, and maturing on April 1, 2039. Interest is payable semiannually on April 1 and October 1. Allen uses the calendar year as its fiscal year. The bond transactions that occurred in 2019 and 2020 follow.

DATE TRANSACTIONS FOR 2019
Apr. 1     Issued $260,000 of bonds at face value.
Oct. 1     Paid the semiannual interest on the bonds issued.
Dec. 31    Recorded the adjusting entry for the accrued bond interest.
31

Closed the Bond Interest Expense account to the Income Summary account.

DATE TRANSACTIONS FOR 2020
Jan. 1    Reversed the adjusting entry made on December 31, 2019.
Apr. 1    Issued $140,000 of bonds at face value.
1    Paid the interest for six months on the bonds previously issued.
Oct. 1    Paid the interest for six months on the outstanding bonds.
Dec. 31    Recorded the adjusting entry for the accrued bond interest.
31

   Closed the Bond Interest Expense account to the Income Summary account.


Required:
Record the transactions in general journal form.

Analyze:
Based on the transactions given, what is the balance in the Bonds Payable account on December 31, 2019?

Solutions

Expert Solution

Date Account titles & Explanations Debit Credit
2019
1-Apr Cash 260,000
Bonds payable 260,000
1-Oct interest expense 7800
cash 7,800
(260,000*6%*6/12)
31-Dec interest expense 3900
interest payable 3,900
(260,000*6%*3/12)
31-Dec income Summary 11700
interest expense 11,700
2020
1-Jan interest payable 3,900
interest expense 3,900
1-Apr cash 140,000
bonds payable 140,000
1-Apr interest expense 7,800
cash 7,800
1-Oct interest expense 12000
interest payable 12,000
(400,000*6%*6/12)
31-Dec interest expense 6000
interest payable 6,000
(400,000*6%*3/12)
31-Dec income summary 21800
interest expense 21,800
2) bonds payable = $400,000

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