Bonds:
Bonds are a kind of the security which an investor invests in an entity for a specific period at a fixed interest rate. These bonds are issued at that time when entity needs huge amount of fund.
To prepare:

Explanation of Solution
(a)
Issue of bonds at discount on December 31, 2017
Date | Account title and Explanation | Post. Ref. | Debit ($) | Credit ($) |
Dec 31 | Cash | 188,000 | ||
Discount on bonds payable | 12,000 | |||
Bonds payable | 200,000 | |||
(to record the sold bonds at discount) |
Table (1)
- Cash account is the assets account. Since the cash is received, the value of assets is increased. So, debit the credit the cash account.
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which decrease the liabilities of the company. So, debit the discount on bonds payable account.
- Bonds payable account is the liabilities account. Bonds has been sold, which increases the liabilities of the company. So, credit the bonds payable account.
(b)
Payment of interest on June 30, 2018
Date | Account title and Explanation | Post. Ref. | Debit ($) | Credit ($) |
June 30 | Bonds interest expense | 8,000 | ||
Discount on bonds payable | 3,000 | |||
Cash | 5,000 | |||
(To record the paid semiannual interest and record amortization) |
Table (2)
- Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
- Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the cash account.
Working notes:
Given,
Unamortized discount on December 31, 2017 is $12,000.
Unamortized discount on June 30, 2018 is $9,000.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.
Calculation of discount on bond payable,
Calculation of amount cash payment,
Payment of interest on December 31, 2018
Date | Account title and Explanation | Post. Ref. | Debit ($) | Credit ($) |
Dec 31 | Bonds interest expense | 8,000 | ||
Discount on bonds payable | 3,000 | |||
Cash | 5,000 | |||
(To record the paid semiannual interest and record amortization) |
Table (3)
- Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
- Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the Cash account.
Working note:
Given,
Unamortized discount on June 30, 2018 is $9,000.
Unamortized discount on December 31, 2018 is $6,000.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.
Calculation of discount on bond payable,
Calculation of amount cash payment,
Payment of interest on June 30, 2019
Date | Account title and Explanation | Post. Ref. | Debit ($) | Credit ($) |
June 30 | Bonds interest expense | 8,000 | ||
Discount on bonds payable | 3,000 | |||
Cash | 5,000 | |||
(To record the paid semiannual interest and record amortization) |
Table (4)
- Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
- Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the cash account.
Working notes:
Given,
Unamortized discount on December 31, 2018 is $6,000.
Unamortized discount on June 30, 2019 is $3,000.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.
Calculation of discount on bond payable,
Calculation of amount cash payment,
Payment of interest on December 31, 2019
Date | Account title and Explanation | Post. Ref. | Debit ($) | Credit ($) |
Dec 31 | Bonds interest expense | 8,000 | ||
Discount on bonds payable | 3,000 | |||
Cash | 5,000 | |||
(To record the paid semiannual interest and record amortization) |
Table (6)
- Bonds interest account is an expense account. Interest has been paid by the company which increases the liabilities of the company. So, debit the bonds interest expense account
- Discount on bonds payable account is the liabilities account. Here, at the time of issue of the bonds discount has been given which increases the liabilities of company. So, credit the discount on bonds payable account.
- Cash is an asset account. Since the cash is paid, the value of assets is decreased. So, credit the cash account.
Working notes:
Given,
Unamortized discount on June 30, 2019 is $3,000.
Unamortized discount on December 31, 2019 is $0.
Bond value is $200,000.
Rate of interest is 5%.
Time period is 0.5.
Calculation of discount on bond payable,
Calculation of amount cash payment,
(c)
Sale of bonds at par on December31, 2018
Date | Account title and Explanation | Post. Ref. | Debit ($) | Credit ($) |
Dec 31 | Bonds payable | 200,000 | ||
Cash | 200,000 | |||
(To record the maturity and payment of bond) |
Table (7)
- Bonds payable is the liabilities account. Here, bonds are mature and paid. The liabilities of the company decreased. So, debit the bonds payable account
- Cash account is the assets account. Since the cash is paid, the value of assets is decreased. So, credit the cash account.
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Chapter 10 Solutions
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