Question

1. Sage Corporation issued $516,000 of 6% bonds on May 1, 2017. The bonds were dated January 1, 2017, and mature January 1, 2020, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest.

Prepare Sage’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

2. The Cullumber Company issued $220,000 of 8% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds were issued at 99.

Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Cullumber Company records straight-line amortization semiannually.

3.

Pronghorn Company issued $480,000 of 10%, 20-year bonds on January 1, 2017, at 103. Interest is payable semiannually on July 1 and January 1. Pronghorn Company uses the straight-line method of amortization for bond premium or discount.

Prepare the journal entries to record the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a)		The issuance of the bonds.
(b)		The payment of interest and the related amortization on July 1, 2017.
(c)		The accrual of interest and the related amortization on December 31, 2017.

Answer 1

Required journal entries are as passed below:

	Year	Particulars	L.F	Debit ($)	Credit ($)
	2017
1	May-01	Cash		526,320
		Interest Payable (516,000*6%*4/12)			10,320
		Bonds Payable			516,000
		(For bonds issued at par value)
	Jul-01	Interest Expense		5,160
		Interest Payable		10,320
		Cash (516,000*6%*6/12)			15,480
		(For interest paid)
	Dec-31	Interest Expense (516,000*6%*6/12)		15,480
		Interest payable			15,480
		(For interest accrued)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2017
2	Jan-01	Cash (220,000*.99)		217,800
		Discount on Bonds payable		2,200
		Bonds Payable			220,000
		(For bonds issued at discount)
	Jul-01	Interest Expense		9,020
		Discount on Bonds payable (2,200/10)			220
		Cash (220,000*8%*6/12)			8,800
		(For interest paid)
	Dec-31	Interest Expense		9,020
		Discount on Bonds payable (2,200/10)			220
		Interest payable			8,800
		(For interest accrued)
	Year	Particulars	L.F	Debit ($)	Credit ($)
	2017
3	Jan-01	Cash (480,000*1.03)		494,400
		Premium on Bonds payable			14,400
		Bonds Payable			480,000
		(For bonds issued at premium)
	Jul-01	Interest Expense		23,640
		Premium on Bonds Payable (14,400/40)		360
		Cash (480,000*10%*6/12)			24,000
		(For interest paid)
	Dec-31	Interest Expense		23,640
		Premium on Bonds Payable (14,400/40)		360
		Interest payable			24,000
		(For interest accrued)