Question

On 07-31-15, Q issued $15,000,000 of its 3%, 5-year bonds dated 04-01-15. The bonds pay interest every April 1 and October 1. At the time the bonds were issued, similar bonds paid 3%. Q did not incur any bond issuance costs. Q uses the effective-interest method to amortize any bond discount or premium and prepares AJEs only as of every 06-30. Prepare the entries Q should make on:

a. 07-31-15 (assume Q uses an interest expense account)

b. 10-01-15

c. 04-01-16

d. 06-30-16

e. 10-01-16

Answer 1

Date	Accont Titles and Explanation	Debit $	Credit $
July 31, 2015	Cash	$        15,150,000
	Bonds Payable		$        15,000,000
	Interest Expense (15000000 x 3% x 4/12)		$              150,000
Oct 1, 2015	Interest Expense ( 15000000 x 3% x 6/12)	$              225,000
	Cash		$              225,000
Apr 1, 2016	Interest Expense ( 15000000 x 3% x 6/12)	$              225,000
	Cash		$              225,000
Jun 30, 2016	Interest Expense ( 15000000 x 3% x 3/12)	$              112,500
	Interest Payable		$              112,500
Oct 1, 2016	Interest Expense ( 15000000 x 3% x 3/12)	$              112,500
	Interest Payable	$              112,500
	Cash		$              225,000