PROBLEMS: SETA Prepare entries to record issuance of bonds, interest accrual, an

Question

PROBLEMS: SETA Prepare entries to record issuance of bonds, interest accrual, and bond redemption P15-1A On May 1, 2017, Herron Corp. issued $600,000, 9%, 5-year bonds at face value. The bonds were dated May 1, 2017, and pay interest annually on May 1. Financial state ments are prepared annually on December 31. Instructions (a) Prepare the journal entry to record the issuance of the bonds. (b) Prepare the adjusting entry to record the accrual of interest on December 31, 2017 (c) Show the balance sheet presentation on December 31, 2017 (d) Prepare the journal entry to record payment of interest on May 1, 2018. (e) Prepare the adjusting entry to record the accrual of interest on December 31, 2018 (D Assume that on January 1, 2019, Herron pays the accrual bond interest and calls the LO 2, 4) d)Int.exp. $18,000 bonds. The call price is 102. Record the payment of interest and redemption of the bonds.

Explanation / Answer

1) Journal Entry

Cash. Dr. $600000

Bonds Payable Cr. $600000

(Bonds issued entry)

2) Adjusting Entry

Interest Expenses. Dr. $36000

($600000*9/100*8/12)

Interest Payable. Cr. $36000

3) Extract of Presentation in Balance sheet

Liability Side

Current Liabilities

Interest Payable

Long term Liabilities

Bonds Payable $600000

4) Journal Entry on May 1, 2018

Interest Payable. Dr. $36000

Interest Expenses Dr. $18000

Cash. Cr. $54000

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