Question

On the first day of the fiscal year, a company issues a $1,000,000, 10%, 5-year bond that pays semiannual interest of $50,000 ($1,000,000 × 10% × ½), receiving cash of $1,081,109.

Journalize the bond issuance. If an amount box does not require an entry, leave it blank.

Answer 1

Company issues $1,000,000 bonds cash recieved =$1,081,109

Rate of interest = 10%

Maturity = 5 years

Semi annual interest = $50,000

  Journalising the issuance of BONDS figures in ( $ )

1) Cash recieved from issuance of bonds.

Cash A/C ....................Dr. 1,081,109

To premium on issue of bonds    81,109

To 10% Bonds A/C 1,000,000

2) Due of bond interest for first year for first half.

  Interest A/C .....................Dr. 50,000

To Interest payable A/C 50,000

3) Payment of interest after due of interest.

Interest payable A/C ..............Dr. 50,000

To Cash/ Bank A/C 50,000

4) Due of interest for first year for second half .

Interest A/C...................Dr. 50,000

To Interest payable A/C 50,000

5) Payment of interest after due date.

Interest payable A/C..............Dr. 50,000

To Cash/ Bank A/C 50,000

NOTE: The entry (2),(3),(4)&(5) of due and payment of interest semi annually will be followed ' same' for next four years.

6) Amortisation of premium to P&L ACCOUNT.

Premium on issue of Bonds A/C .............Dr. 81,109

To P&L A/C    81,109

7)Bonds are redeemed at the time of maturity.

10% Bonds A/C .......................Dr. 1,000,000

To Cash / Bank A/C 1,000,000