Question

Lundholm, Inc., which reports financial statements each December 31, is authorized to issue $500,000 of 9%, 15-year bonds dated May 1, 2015, with interest payments on october 31 and April 30. Assume the bonds are issued at par on May 1, 2015.

a) Prepare Journal entries to record the bond issuance, payment of the first semiannual period's interest, and retirement of $300,000 of the bonds at 101 on November 1, 2016.

b) Post the Journal entries from part a) to their respective T-Accounts

c) Record each of the transactions from part a in the financial statement effects template

Answer 1

a) 1 May 2015 Cash a/c Dr. 500000

To Bonds payable 500000

( Bonds issued at par )

31st oct 2015 Bond Interest expense a/c Dr. 22500

To Cash a/c 22500

(Interest payable semi annually = 500000*9%*6/12)

31st Dec 2015 Bond Interest Expense a/c Dr. 7500

To Interest Payable a/c 7500

(To record accrued interest for november & december payable in april.=500000*9%*2/12)

30 April 2016 Bond Interest expense a/c Dr. 15000

Interest payable a/c Dr. 7500

To Cash a/c 22500

(Interest payable semi annually = 500000*9%*6/12)

31st oct 2016 Bond Interest expense a/c Dr. 22500

To Cash a/c 22500

  (Interest payable semi annually = 500000*9%*6/12)

1st Nov 2016 Bonds a/c Dr. 300000

Premium Dr. 3000

To Cash 303000

( Bonds matured @101)

Cash A/c
Date	Particulars	Amount (Dr.)	Date	Particulars	Amount (Cr.)
1st May 2015	Bonds Payable	500000	31st Oct 2015	Interest Expense	22500
			31/12/15	By Bal c/d	477500
		500000			500000
1/1/2016	To Bal B/d	477500	30/4/2016	By Bonds Interest expense	15000
			31/10/16	By Bonds Interest expense	22500
			1/11/2016	By Bonds payable a/c	300000
			1/11/2016	By Premium A/c	3000
			31/12/16	By Bal c/d	137000
		477500			477500

Bonds payable a/c
Date	Particulars	Amount (Dr.)	Date	Particulars	Amount (Cr.)
31/12/15	To Bal C/d	500000	1st May 2015	By Cash	500000
1/11/2016	To Cash	303000	1/1/2016	By Bal B/d	500000
31/12/16	To Bal c/d	197000
		500000			500000

Bonds Interest expense a/c
Date	Particulars	Amount (Dr.)	Date	Particulars	Amount (Cr.)
31/10/2015	To Cash a/c	22500
31/12/2015	To Interest Payable a/c	7500	31/12/15	By Bal c/d	30000
		30000			30000
1/1/2016	To Bal b/d	30000
30/4/2016	To Cash a/c	15000
31/10/16	To Cash a/c	22500	31/12/16	By Bal c/d	67500
		67500			67500

Interest Payable a/c
Date	Particulars	Amount (Dr.)	Date	Particulars	Amount (Cr.)
30/4/16	To cash	7500	31/12/15	By Bonds Interest payable	7500