1. On July 1, 2018, Volunteer Inc. issued bonds with a $500,000 face value at 108.0 and the 5-year bonds have a 10% interest rate in a market with a rate of 8%. Interest is payable annually and the effective-interest method is used for amortization. Prepare journal entries for the following transactions. Premium on Bonds Payable Interest Income Discount on Bonds Payable Interest Expense Cash Bonds Payable PLEASE NOTE: For each of the following journal entries there is one account's treatment (DR or CR), that depends on whether it is a bond issued at a premium or a discount. You are to identify if it is a DR or a CR. You must enter the account names exactly as written above and all dollar amounts will be rounded to whole dollars with "$" and commas as needed (i.e. $12,345). July 1, 2018: to record issuing the bonds DR DR/CR ? CR June 30, 2019: to record the amortization & payment of interest to bondholders: DR DR/CR ? CR June 30, 2020: to record the amortization & payment of interest to bondholders: DR DR/CR ? CR What was the last period’s interest expense adjustment to complete the amortization?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On July 1, 2018, Volunteer Inc. issued bonds with a $500,000 face value at 108.0 and the 5-year bonds have a 10% interest rate in a market with a rate of 8%. Interest is payable annually and the effective-interest method is used for amortization. Prepare journal entries for the following transactions.

Premium on Bonds Payable	Interest Income	Discount on Bonds Payable
Interest Expense	Cash	Bonds Payable

PLEASE NOTE: For each of the following journal entries there is one account's treatment (DR or CR), that depends on whether it is a bond issued at a premium or a discount. You are to identify if it is a DR or a CR.

You must enter the account names exactly as written above and all dollar amounts will be rounded to whole dollars with "$" and commas as needed (i.e. $12,345).

July 1, 2018: to record issuing the bonds
DR

DR/CR ?

CR
June 30, 2019: to record the amortization & payment of interest to bondholders:
DR

DR/CR ?

CR
June 30, 2020: to record the amortization & payment of interest to bondholders:
DR

DR/CR ?

CR
What was the last period’s interest expense adjustment to complete the amortization?

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