Question

E14-3 (Entries for Bond Transactions) Presented below are two independent situations.

1. On January 1, 2015, Divac Company issued €300,000 of 9%, 10-year bonds at par. Interest is payable

quarterly on April 1, July 1, October 1, and January 1.

2. On June 1, 2015, Verbitsky Company issued €200,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.

Instructions

For each of these two independent situations, prepare journal entries to record the following.

(a) The issuance of the bonds.

(b) The payment of interest on July 1.

(c) The accrual of interest on December 31

Answer 1

( all amounts are in euro's )

(a) Issuance of bonds:

1. Divac company

By bank a/c dr 300,000

To 9%bonds 300,000

( Being 9% bonds issued )

2. Verbitsky Company

By bank a/c dr 200,000

To 12%bonds 200,000

( Being 12% bonds issued )

(B) payment of interest

1. Divac company

By Interest on Bonds A/c DR 6750

To interest payable 6750

( Being interest payable @9% on quarterly basis )

By Interest payable A/c Dr 6750

To bank 6750

( Being interest paid on April 1st)

By Interest on Bonds A/c DR 6750

To interest payable 6750

( Being interest payable @9% on quarterly basis )

By Interest payable A/c Dr 6750

To bank 6750

( Being interest paid on July 1st)

By Interest on Bonds A/c DR 6750

To interest payable 6750

( Being interest payable @9% on quarterly basis )

By Interest payable A/c Dr 6750

To bank 6750

( Being interest paid on october 1st)

By Interest on Bonds A/c DR 6750

To interest payable 6750

( Being interest payable @9% on quarterly basis )

By Interest payable A/c Dr 6750

To bank 6750

( Being interest paid on jan 1st)

2. Verbitsky Company

By Interest on Bonds A/c DR 12,000

To interest payable 12,000

( Being interest payable @12% semi annually basis)

By Interest payable A/c Dr 12,000

To bank 12,000

( Being interest paid on July 1st)

By Interest on Bonds A/c DR 12,000

To interest payable 12,000

( Being interest payable @12% semi annually basis)

By Interest payable A/c Dr 12,000

To bank 12,000

( Being interest paid on jan 1st)

3. Accrual interest as on 31st dec

1. Divac company

By Interest on Bonds A/c DR 6750

To interest payable 6750

( Being interest payable @9% on quarterly basis i.e last quarter accural entry )

2. Verbitsky Company

By Interest on Bonds A/c DR 12,000

To interest payable 12,000

( Being interest payable @12% semi annually basis i.e last quarter accural entry )

Above just shown the accural Interest payment entry

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