Explanation Journalizing: Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger account. Given information: Given, Face value of bond is $700,000. Market rate of interest is 2.5%. Coupon rate is 3% Time period after which the first interest payment is made is 6 months. Sale value of bonds is $723,807. Accounting rules for journal entries: To increase balance of accounts: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains. To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenues and gains. Journal entry to record the issue of bond: Date Account Title and Explanation Ref. No. Debit ($) Credit ($) 30 Nov. 2016 Cash 723,807 Premium on bonds payable 15,057 Interest payable 8,750 Bond payable 700,000 ( to record the issue of bonds ) Table (1) As the issue of bonds will increase the cash for the company and cash is an asset account which is debited with the increase in it, so increase in cash should be debited. The interest payable is a liability and increase in liability is always credited, so increase in interest payable will be credited. As bond payable is a liability account and increase in liability is always credited so, bond payable account should be credited. As premium on bonds payable is an income to the company and increase in income is always credited, so, the income on bonds payable is credited. Journal entry to record the first interest payment is: Date Account Title and Explanation Ref. No. Debit ($) Credit ($) 31 Dec 2016 Interest expenses 1,490 Interest payable 8,750 Premium on bonds payable 260 Cash 10,500 ( to record the interest payment ) Table (2) Payment of interest would reduce the amount of cash in the company and cash is an asset account which is credited with the decrease in it, so decrease in cash should be credited...

Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition

1st Edition

ISBN: 9780134047430

Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

Publisher: PEARSON

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Chapter 14, Problem 14.11E

To determine

To prepare: Journal entries to issue the bonds and to record the first interest payment.

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Chapter 14, Problem 14.10E

Chapter 14, Problem 14.12E

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Chapter 14 Solutions

Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition

Ch. 14 - What conditions or terms does a note payable...Ch. 14 - If the market rate of interest exceeds the face or...Ch. 14 - What is included in bond issue costs and how...Ch. 14 - Prob. 14.4Q Ch. 14 - When a bond is issued at a discount, will its...Ch. 14 - Prob. 14.6Q Ch. 14 - Prob. 14.7Q Ch. 14 - Under IFRS, how do firms account for convertible...Ch. 14 - Prob. 14.9Q Ch. 14 - Can companies reclassify short-term debt expected...

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