Question

Brussels Enterprises issues bonds at par dated January 1, 2019, that have a $3,200,000 par value, mature in four years, and pay 9% interest semiannually on June 30 and December 31.
1. Record the entry for the issuance of bonds for cash on January 1.
2. Record the entry for the first semiannual interest payment and the second semiannual interest payment.
3. Record the entry for the maturity of the bonds on December 31, 2022 (assume semiannual interest is already recorded).

Answer 1

Answer:

• Brussels Enterprises issues bonds at par dated January 1, 2019    

 Debit  $3,200,000  Cash    

 Credit  $3,200,000  Bonds Payable  

   

• Interest semiannually on June 30      

 Debit  $144,000  Bond Interest Expense  

 Credit  $144,000  Cash  

• Interest semiannually on December 31      

 Debit  $144,000  Bond Interest Expense  

 Credit  $144,000  Cash  

   

• Record the entry for the maturity of the bonds on December 31, 2022    

 Debit  $3,200,000  Bonds Payable  

 Credit  $144,000  Bond Interest Expense  

 Credit  $3,344,000  Cash  

Explanation:

At the moment of the company receive the money for the bonds issued, the company record the following journal entry:

Debit  $3,200,000  Cash    

Credit  $3,200,000  Bonds Payable  

Recognizing the money that the company get and the liabilities for the years to come on the Long Term Liabilities in the balance sheet, becuase it matures in 4 years.

• When the company begins to pay the interest the company records the following entry:

Debit  $144,000  Bond Interest Expense  

Credit  $144,000  Cash  

The company recognizes the interest payment at each moment it occurs as expenses in the Income Statement.

At the maturity of the bonds the company reverse the entry made at the beginning when it receives the money and recognize the liabilities.

Now the journal entry is as follows:

Debit  $3,200,000  Bonds Payable  

Credit  $144,000  Bond Interest Expense  

Credit  $3,344,000  Cash