On 1/1/12, DD Lang issues 8%, 10-year bonds with a par (face) value of $250,000
ID: 2372833 • Letter: O
Question
On 1/1/12, DD Lang issues 8%, 10-year bonds with a par (face) value of $250,000 and semiannual interest payments. The bonds sell t 95 (they sell at discount).
a. Prepare the journal entry for the issuance of bonds.
b. Prepare the general journal entry for the 7/1/12 semi-annual interest payment assuming DD Lang uses the straight-line
method to calcute Discount on Bonds Payable and to allocate interest expense.
c. Prepare the general journal entry for the 12/31/12 semi-annual interest payment assuming the 2nd interest payment will be paid in cash on 1/1/13. Then post the payment on 1/1/13.
Explanation / Answer
a. Prepare the journal entry for the issuance of bonds
Bank A/c Dr. 237500
Bond Discount A/c Dr. 12500
To Bond Payable Cr. 250000
B. Prepare the general journal entry for the 7/1/12 semi-annual interest payment assuming DD Lang uses the straight-line
Interest Expenses A/c Dr. 10625
To Bond Discount A/c Cr. 625
To Bank 10000
Prepare the general journal entry for the 12/31/12 semi-annual interest payment assuming the 2nd interest payment will be paid in cash on 1/1/13. Then post the payment on 1/1/13.
On 12/31/12
Interest Expenses A/c Dr. 10625
To Bond Discount A/c Cr. 625
To Interest Payable to Bond holder 10000
On 1/1/13
Interest Payable to Bond holder Dr. 10000
To Bank/Cash Cr. 10000
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