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Presented below are two independent situations.1. On January 1, 2014, Simon Company issued $200,000 of 9%, 10-year bonds at par. Interest is payable quarterly on April 1, July 1, October 1, and January 1.2. On June 1, 2014, Garfunkel Company issued $100,000 of 12%, 10-year bonds dated January 1 at par plus accrued interest. Interest is payable semiannually on July 1 and January 1.Required:1. For each of these two independent situations, prepare journal entries to record the following.
(a) The issuance of the bonds.(b) The payment of interest on July 1.(c) The accrual of interest on December 31.

Respuesta :

Answer:

The necessary journal entries are as follows:

Simon company:

Issuance:

Dr Cash                    $200,000

Cr Bonds payable                       $200,000

Interest payment on July 1

Dr Interest expense($200,000*9%*3/12)      $4500

Cr Cash                                                                       $4500

Accrued interest on 31 December:

Dr Interest expense($200,000*9%*3/12)      $4500

Cr Interest payable                                                      $4500

Garfunkel

Issuance of bond:

Dr Cash                          $105000

Cr Bonds payable                        $100,000

Cr Interest expense                          $5000

Interest payment on July 1

Dr Interest expense($100,000*12%*6/12)      $6000

Cr Cash                                                                       $6000

Accrued interest on 31 December:

Dr Interest expense($100,000*12%*6/12)      $6000

Cr Interest payable                                                        $6000

Explanation:

The bond issued on January 1 , 2014 was issued at par,hence $200,000 cash proceeds were received.

The required journal entries are:

Dr Cash                    $200,000

Cr Bonds payable                       $200,000

The second bond was issued at par plus the accrued interest, as a result, the issue price is computed thus:

Par value                                                                   $100000

plus accrued interest to date($100000*12%*5/12)      $5000

Issued amount                                                          $105000

The journal entries as follows

Dr Cash                          $105000

Cr Bonds payable                        $100,000

Cr Interest expense                          $5000

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