PROBLEM 7 (10 points) Assume Wells Corporation issues $10 million of 6 percent b

Question

PROBLEM 7 (10 points) Assume Wells Corporation issues $10 million of 6 percent bonds at par value on May 1, 2015 two months after the March interest date printed on the bonds. The amount received from the bond purchasers now will include two months' accrued interest Interest is paid semi-annually on March 1 and September 1. PREPARE THE NECESSARY JOURNALS FOR THE FOLLOWING a) May 1, 2015, to record the issuance of the bonds. b) September 1, 2015, prepare the entry for the first semiannual interest payment. c) September 1, 2016 to record next year's semiannual interest payment.

Explanation / Answer

Journal Entry S.no Date Particulars Dr. Amt. Cr. Amt. a. 1-May-15 Cash                                                           Dr.    10,100,000.00 To Bonds Payable    10,000,000.00 To Interest Payable          100,000.00 $10,000,000 X 6% X 2/12 b. 1-Sep-15 Interest Expenses                                Dr.          200,000.00 $10,000,000 X 6% X 4/12 Interest Payable                                   Dr.          100,000.00 $10,000,000 X 6% X 2/12 To Cash          300,000.00 $10,000,000 X 6% X 6/12 (Record the semiannual interest payment) c. 1-Sep-16 Interest Expenses                                Dr.          300,000.00 $10,000,000 X 6% X 6/12 To Cash          300,000.00 $10,000,000 X 6% X 6/12 (Record the semiannual interest payment)

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