Question

On June 1, 2017, W Corp. issued $3,000,000, 9%, 5-year bonds at face value. They were dated June 1, 2017, and pay interest annually on June 1.   Financial statements are prepared annually on December 31.

(a) Prepare the journal entry to record the issuance of the bonds on June 01, 2017.

(b) Prepare the adjusting entry to record the accrual of interest on December 31, 2017.

(d) Prepare the journal entry to record payment of (J,F,M,A,M) interest on June 1, 2018.

(e) Prepare the adjusting entry to record the accrual of (J,J,A,S,O,N,D) interest on     

       December 31, 2018.

(f) Assume that on JAN 1, 2019, W Corp pays the accrued interest and calls the bonds at

     102 (102% of the face value of the bonds). Record the payment of interest and redemption

      of the bonds.

(a) June 01	Cash	3000000
2017	Bonds Payable		3000000
(b) Dec 31	Interest Expense
2017	Interest Payable
(d) June 01	Interest Payable
2018	Interest Expense
	Cash
(e) Dec 31	Interest Expense
2018	Interest Payable
(f)   Jan 01	Interest Payable
2019	Cash
Pay Interest	Bonds Payable
& Redem	Loss on Bond redemption
	Cash

Answer 1

Date	General Journal	Debit	Credit
a) June 01	Cash	$3,000,000
2017	Bonds Payable		$3,000,000
(b) Dec 31	Interest Expense (3,000,000*coupon rate 9%*7 months / 12)	$157,500
2017	Interest Payable		$157,500
(d) June 01	Interest Payable	$157,500
2018	Interest Expense (3,000,000*coupon rate 9%*5 months / 12)	$112,500
	Cash		$270,000
(e) Dec 31	Interest Expense (3,000,000*coupon rate 9%*7 months / 12)	$157,500
2018	Interest Payable		$157,500
(f)   Jan 01	Interest Payable	$157,500
2019	Cash		$157,500
Pay Interest	Bonds Payable	$3,000,000
& Redem	Loss on Bond redemption (bal fig)	$60,000
	Cash (Face value 3,000,000 x 102%)		$3,060,000

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