
a.
Prepare the
a.

Explanation of Solution
Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.
Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.
Prepare journal entry for issuance of bonds payable on December 31, 2015.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
2015 | Cash | 188,000 | |||||
December 31 | Discount on Bonds Payable | 12,000 | |||||
Bonds Payable | 200,000 | ||||||
(To record issuance of bonds payable at discount) |
Table (1)
Description:
- Cash is an asset and it is increased. So, debit it by $188,000.
- Discount on Bonds Payable is an adjunct liability account and it is decreased. So, debit it by $12,000.
- Bonds payable is a liability and it is increased. So, credit it by $200,000.
b.
Prepare the journal entry to record semiannual interest and amortization of discount on bonds.
b.

Explanation of Solution
Prepare journal entry for payment of semiannual interest and amortization of discount on bonds.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
2016 | Bond Interest Expense (3) | 8,000 | |||||
June | 30 | Discount on Bonds Payable (1) | 3,000 | ||||
Cash (2) | 5,000 | ||||||
(To record semiannual payment of interest and amortization of discount on bonds) |
Table (2)
Working notes:
Calculate discount on bonds payable semiannually.
Calculate the amount of cash interest as on June 30, 2016.
Calculate the interest expense on the bond as on June 30, 2016.
- Interest expense is an expense and it decreases the equity value. So, debit it by $8,000.
- Discount on Bonds Payable is an adjunct liability account and it is increased. So, credit it by $3,000.
- Cash is an asset and it is decreased. So, credit it by $5,000
Prepare journal entry for payment of semiannual interest and amortization of discount on bonds.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
2016 | Bond Interest Expense (6) | 8,000 | |||||
December | 31 | Discount on Bonds Payable (4) | 3,000 | ||||
Cash (5) | 5,000 | ||||||
(To record semiannual payment of interest and amortization of discount on bonds) |
Table (3)
Working notes:
Calculate discount on bonds payable semiannually.
Calculate the amount of cash interest as on December 31, 2016.
Calculate the interest expense on the bond as on December 31, 2016.
- Interest expense is an expense and it decreases the equity value. So, debit it by $8,000.
- Discount on Bonds Payable is an adjunct liability account and it is increased. So, credit it by $3,000.
- Cash is an asset and it is decreased. So, credit it by $5,000
Prepare journal entry for payment of semiannual interest and amortization of discount on bonds.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
2017 | Bond Interest Expense (9) | 8,000 | |||||
June | 30 | Discount on Bonds Payable (7) | 3,000 | ||||
Cash (8) | 5,000 | ||||||
(To record semiannual payment of interest and amortization of discount on bonds) |
Table (4)
Working notes:
Calculate discount on bonds payable semiannually.
Calculate the amount of cash interest as on June 30, 2017.
Calculate the interest expense on the bond as on June 30, 2017.
- Interest expense is an expense and it decreases the equity value. So, debit it by $8,000.
- Discount on Bonds Payable is an adjunct liability account and it is increased. So, credit it by $3,000.
- Cash is an asset and it is decreased. So, credit it by $5,000
Prepare journal entry for payment of semiannual interest and amortization of discount on bonds.
Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
2017 | Bond Interest Expense (12) | 8,000 | |||||
December | 31 | Discount on Bonds Payable (10) | 3,000 | ||||
Cash (11) | 5,000 | ||||||
(To record semiannual payment of interest and amortization of discount on bonds) |
Table (5)
Working notes:
Calculate discount on bonds payable semiannually.
Calculate the amount of cash interest as on June 30, 2016.
Calculate the interest expense on the bond as on June 30, 2016.
- Interest expense is an expense and it decreases the equity value. So, debit it by $8,000.
- Discount on Bonds Payable is an adjunct liability account and it is increased. So, credit it by $3,000.
- Cash is an asset and it is decreased. So, credit it by $5,000
c.
Prepare the journal entry to record the payment of bond payable at maturity.
c.

Explanation of Solution
Prepare journal entry for payment of bond payable at maturity.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | |||
2017 | Bonds Payable | 200,000 | |||||
December | 31 | Cash | 200,000 | ||||
(To record the payment of bond payable at maturity) |
Table (6)
- Bonds payable is a liability and it is decreased. So, debit it by $200,000.
- Cash is an asset and it is decreased. So, credit it by $200,000.
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