A company issued 25,000, 10-year, 5 percent, $100 bonds on January 1 at face val

Question

A company issued 25,000, 10-year, 5 percent, $100 bonds on January 1 at face value. Interest is payable each December 31.

(a)

The issuance of these bonds on January 1.

(b)

The first interest payment on December 31.

Indicate the effects of the amounts for the above transactions

Assets

=

Liabilities

+

Stockholders’ Equity

(a)

(b)

2.

Prepare the journal entries related for the above transactions.

a) The company issued 25,000, 10-year, 5 percent, $100 bonds on January 1 at face value. Interest is payable each December 31. Record the issuance of 25,000 bonds at face value for $100 each.

b) The company issued 25,000, 10-year, 5 percent, $100 bonds on January 1 at face value. Interest is payable each December 31. Record the interest payment on December 31.

A company issued 25,000, 10-year, 5 percent, $100 bonds on January 1 at face value. Interest is payable each December 31.

Explanation / Answer

Effects of the amounts for the above transactions

Effects of the amounts for the above transactions

Assets = Liabilities + Stockholders’ Equity (a) BankCash (25000*100) 2500000 Bonds (25000*100) 2500000 + (b) BankCash (2500000*5%)     -125000 Reservres & Surplus -125000 Journal Entries : (a) 1-Jan Bank/Cash             Dr. 2500000 To Bonds 2500000 ( Being 25000 bonds issued @ $100) (b) 31-Dec Interest Expense         Dr 125000 To Interest Payable        125000 (Being interest payable @ 5%) 31-Dec Interest Payable         Dr 125000 To Cash/Bank 125000 (Being Interest Paid) 31-Dec Reserves & Surplus      Dr 125000 To Interest Expenses 125000 ( Being Interest Expenses transfer to Profit & Loss A/c)

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