ond A - total face value of $500,000 sold at 98.56. Stated interest rate 5% (pai
ID: 2388553 • Letter: O
Question
ond A - total face value of $500,000 sold at 98.56. Stated interest rate 5% (paid annually).Bond B - total face value of $300,000 sold at 103.75 on 1/1/09. Stated interest rate 7% (paid annually). Matures in 5 years.
Prepare journal entries for Bond B:
Debit
Credit
To record sales of Bond B on 1/1/09
To record interest payable and interest expense on Bond B through 12/31/09.
To record interest payable and interest expense on Bond B through 12/31/10.
To record redemption of Bond B bonds on 12/31/10 at 101.
Explanation / Answer
Bond A - total face value of $500,000 sold at 98.56. Stated interest rate 5% (paid annually).
492,800
Bond B - total face value of $300,000 sold at 103.75 on 1/1/09. Stated interest rate 7% (paid annually). Matures in 5 years.
311,250
Prepare journal entries for Bond B:
To record sales of Bond B on 1/1/09
Cash DR 311,250
Bond payable CR 300,000
Premium on bond payable CR 11,250
To record interest payable and interest expense on Bond B through 12/31/09.
Premium on bond payable (11,250 / 5 for one year)DR 2,250
Interest payable (300,000 * 7%)CR 21,000
To record interest payable and interest expense on Bond B through 12/31/10.
Interest expense 18,750
Premium on bond payableDR (11,250 / 5 for one year) 2,250
Interest payable (300,000 * 7%)CR 21,000
To record redemption of Bond B bonds on 12/31/10 at 101.
Bonds payable 300,000
Premium on bond payable (11,250 - 2,250-2,250) 6,750
Cash (300,000*1.01) 303,000
Gain on bond redemption ((300,000+6,750) - 303,000) 3,750
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