Gridley Company issued $800,000, 11%, 10-year bonds on December 31, 2016, for $7
ID: 2714623 • Letter: G
Question
Gridley Company issued $800,000, 11%, 10-year bonds on December 31, 2016, for $730,000. Interest is payable annually on December 31. Gridley Company uses the straight-line method to amortize bond premium or discount.
Prepare the journal entry to record the issuance of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Prepare the journal entry to record the payment of interest and the discount amortization on December 31, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Prepare the journal entry to record the redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Explanation / Answer
Entry for issuance of the bond:
Date
Description
Debit
Credit
Dec 31,2016
Cash
730000
Discount on issue of bond
70000
Bond Payable
800000
Annual amortization of discount = Discount on issue of bond/ no. of years
=70,000/10
= 7,000
Journal entry for payment of interest:
Date
Description
Debit
Credit
Dec 31,2016
Interest expense
95000
Discount on issue of bond
7000
Cash (800,000 x11%)
88000
Entry for redemption of bond:
Date
Description
Debit
Credit
Dec 31,2016
Bonds payable
800000
Interest expense
95000
Cash (800,000 x11% +800000)
888000
Discount on issue of bond
7000
Date
Description
Debit
Credit
Dec 31,2016
Cash
730000
Discount on issue of bond
70000
Bond Payable
800000
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