P10-3A On May 1, 2017, Herron Corp. issued $600,000, 9%, 5 arbon The bonds were

Question

P10-3A On May 1, 2017, Herron Corp. issued $600,000, 9%, 5 arbon The bonds were dated May 1, 2017, and pay interest annually on May 1. ments are prepared annually on December 31. in cial state- annually on May 1. Financial state- Instructions (a) Prepare the journal entry to record the issuance of the bonds. (b) Prepare the adjusting entry to record the accrual of interest o (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 accrued bond interest and calls the n December 31, 2017. bonds at 102. Record the payment of interest and redemption of the bonds.

Explanation / Answer

Req a: Journal entry for Issuance of bonds: May1 2017 Cash Account Dr. 600,000           Bonds payable 600,000 Req b: Dec31 2017 Interest expense Dr. 36000       Interest payable (600,000*9%*8/12) 36000 Req c: BALANCE SHEET: Liabilities: Bonds payable 600,000 Interest payable 36,000 Req d: May 1 2018 Interest expense Dr. (600,000*9%*4/12) 18000 Interest payable 36000          Cash Account 54000 Req e: Dec 31 2018 Interest expense Dr. 36000       Interest payable (600,000*9%*8/12) 36000 Req f: Jan1 2019 Interest payable Dr. 36000       Cash Account 36000 Bonds payable 600,000 Loss on retirement of bonds Dr. 12000        Cash Account (600,000*102%) 612000

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