Question

Presented below are two independent situations.

1. On January 1, 2020, Sandhill Company issued $120,000 of 7%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.

2. On June 1, 2020, Teal Company issued $72,000 of 10%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.

For each of these two independent situations, prepare journal entries to record the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) (a) The issuance of the bonds. (b) The payment of interest on July 1. (c) The accrual of interest on December 31.

Answer 1

Answer:

1)

Date	Account titles	Debit ($)	Credit ($)
	Sandhill Company:
Jan 1, 2020	Cash A/c Dr.	120,000
	To Bond Payable A/c		120,000
April 1, 2020	Interest Expense A/c Dr. (120,000*7%/4)	2,100
	To Cash A/c		2,100
July 1, 2020	Interest Expense A/c Dr. (120,000*7%/4)	2,100
	To Cash A/c		2,100
Oct 1, 2020	Interest Expense A/c Dr. (120,000*7%/4)	2,100
	To Cash A/c		2,100
Dec 31,2020	Interest Expense A/c Dr. (120,000*7%/4)	2,100
	To Interest Payable A/c		2,100

         
2)

Date	Account titles	Debit ($)	Credit ($)
	Teal Company:
Jan 1, 2020	Cash A/c Dr.	75,000
	To Bond Payable A/c		72,000
	To Interest Payable A/c  (72,000*10% 5/12)		3,000
July1, 2020	Interest Expense A/c Dr. (72,000 *10% 1/12)	600
	Interest Payable A/c Dr. (72,000*10% 5/12)	3,000
	To Cash A/c		3,600
Dec 31, 2020	Interest Expense A/c Dr. (72,000*10% 6/12)	3,600
	To Interest Payable A/c		3,600