Question

Viking Voyager specializes in the design and production of replica Viking boats. On January 1, 2018, the company issues $1,810,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.

Required:

1. If the market interest rate is 7%, the bonds will issue at $1,810,000. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. If the market interest rate is 8%, the bonds will issue at $1,687,008. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. If the market interest rate is 6%, the bonds will issue at $1,944,641. Record the bond issue on January 1, 2018, and the first two semiannual interest payments on June 30, 2018, and December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1. 01-01-2018 Cash A/c Dr 1,810,000

To 7% Bonds A/c 1,810,000

( Being 7% Bonds Issue)

30-06-2018 Interest on 7% bonds A/c Dr (1,810,000 X 7/100 x 6/12) 63,350

To Interest Payable on 7% bonds 63,350

( Being Interest payable on 7% Bonds )

  Interest Payable on 7% bonds A/c Dr 63,350

To Cash A/c 63,350

( Being Interest paid on 7% Bonds )

31-12-2018

Interest on 7% bonds A/c Dr (1,810,000 X 7/100 x 6/12) 63,350

To Interest Payable on 7% bonds 63,350

( Being Interest payable on 7% Bonds )

Interest Payable on 7% bonds A/c Dr 63,350

To Cash A/c 63,350

( Being Interest paid on 7% Bonds )

31-12-2018 Profit & Loss A/c Dr 1,26,700

To Interest on 7% Bonds A/c 1,26,700

( Being Expense transfer to Profit & Loss A/c )

2.) 01-01-2018 Cash A/c Dr 1,687,008

Discoun on issue of bonds A/c Dr 1,22,992

To 8% Bonds A/c 1,810,000

( Being issue of bonds on Discount)

30-06-2018 Interest on 8% bonds A/c Dr (1,810,000 X 8/100 x 6/12) 72,400

To Interest Payable on 8% bonds 72,400

( Being Interest payable on 7% Bonds )

  Interest Payable on 8% bonds A/c Dr 72,400

To Cash A/c 72,400

( Being Interest paid on 7% Bonds )

31-12-2018

Interest on 7% bonds A/c Dr (1,810,000 X 8/100 x 6/12) 72,400

To Interest Payable on 7% bonds 72,400

( Being Interest payable on 7% Bonds )

Interest Payable on 7% bonds A/c Dr 72,400

To Cash A/c 72,400

( Being Interest paid on 7% Bonds )

31-12-2018 Profit & Loss A/c Dr 2,67,792

To Interest on 7% Bonds A/c 1,44,800

To Discount on issue of Bonds A/c 1,22,992

( Being Expense transfer to Profit & Loss A/c )

3.)  

01-01-2018 Cash A/c Dr 1,944,641

To 6% Bonds A/c 1,810,000

To Premimum on issue 1,34,641

( Being 6% Bonds Issue on premium)

30-06-2018 Interest on 6% bonds A/c Dr (1,810,000 X 6/100 x 6/12) 54,300

To Interest Payable on 6% bonds 54.300

( Being Interest payable on 6% Bonds )

  Interest Payable on 6% bonds A/c Dr 54,300

To Cash A/c 54,300

( Being Interest paid on 6% Bonds )

31-12-2018

Interest on 6% bonds A/c Dr (1,810,000 X 6/100 x 6/12) 54,300

To Interest Payable on 6% bonds 54,300

( Being Interest payable on 6% Bonds )

Interest Payable on 6% bonds A/c Dr 54,300

To Cash A/c 54,300

( Being Interest paid on 6% Bonds )

31-12-2018 Profit & Loss A/c Dr 1,08,600

To Interest on 6% Bonds A/c 1,08,600

( Being Expense transfer to Profit & Loss A/c )

Note: Premium on issue of bonds transfer to Balance sheet under reserves & surplus