Wart Ltd issued $8,000,000 face value, five-year, 10% bonds on August 1, 2015 wh
ID: 2462600 • Letter: W
Question
Wart Ltd issued $8,000,000 face value, five-year, 10% bonds on August 1, 2015 when the market rate of interest was 12%. Interest payments are due quarterly. Wart has a December 31 year end and has adopted the straight-line method of amortizing any premium or discount that may result from the issuance of various financial instruments. Prepare the journal entry to record the issuance of the bonds. Prepare all journal entries required to record the first full year the bonds arc outstanding Clearly outline how all bond related items would be shown on the year end Statement of Financial Position of Wart Ltd. What is the interest expense that will be shown on the year end income statement of Wart Ltd?Explanation / Answer
1. Journal entry at the time of Issuing of Bond
Cash A/c dr $8,000,000
TO Bonds pAyable (Credit) $8,000,000
2.on 30th September Interst Due
Interst Expense A/c Dr $1,33,333
TO Cash A/c $1,33,333 (Credit)
3.On 31st of December
Interst Expense A/c Dr $2,00,000
TO Cash A/c $2,00,000 (Credit)
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