Exercise 10-21 Sheridan Company issued $459,000, 9%, 15-year bonds on December 3

Question

Exercise 10-21

Sheridan Company issued $459,000, 9%, 15-year bonds on December 31, 2016, for $440,640. Interest is payable annually on December 31. Sheridan uses the straight-line method to amortize bond premium or discount.

Prepare the journal entries to record the following events. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2016

Dec. 31, 2017

Dec. 31, 2031

(a) The issuance of the bonds. (b) The payment of interest and the discount amortization on December 31, 2017. (c) The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Explanation / Answer

SOLUTION

S.No. Date Account titles and Explanation Debit ($) Credit ($) (A) Dec. 31, 2016 Cash 440,640 Discount on bonds payable 18,360 Bonds payable 459,000 (To record issuance of bonds) (B) Dec. 31, 2017 Bonds interest expense 42,534   Bonds discount (amortization) ($18,360 /15) 1,224 Cash ($459,000 * 9%) 41,310 (To record payment of interest and the discount amortization ) (C) Dec. 31, 2031 Bonds payable 459,000 Cash 459,000 (To record redemption of the bonds )

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