Question

For the following bond prepare journal entries for both seller and buyer regarding the sale on January 1st, first three years of interest payments (using the interest method), and the retirement of this bond at 97%.

$1,000,000 ten year bonds, stated 9%, market 8%, interest paid semi-annual.

Answer 1

		*Actual Interest rate is taken for calculation
In the books of buyer				Amount in Usd
	Interest computation
Interest rate assuming the interest wiol be paid semi annually and will not get compounded
On receipt
Bank Ac dr			Dr	1000000
To Ac(party name)			Cr	1000000
Journal Entry for interest payment for every 6 months for 6 periods
Interest payable ac dr			Dr	45000
To Bank Account			Cr	45000
Profit and loss ac dr			Dr	45000
To Interest payable ac			Cr	45000
On Redemption
(party Name) Ac dr			Dr	1000000
To Bank			Cr	970000
To Profit and loss ac			Cr	30000
In The books of Seller
On issue of bond
Party name Ac Dr			Dr	1000000
To Bank Ac			Cr	1000000
Interest receipt
Bank Ac Dr			Dr	45000
to Interest Account			Cr	45000
Interest ac dr to			Dr	45000
Profi and loss ac			Cr	45000
On redemption
Bank Ac Dr			Dr	970000
To Party Name Ac			Cr	970000