Answer:
The necessary journal entries are as follows:
Simon company:
Issuance:
Dr Cash $200,000
Cr Bonds payable $200,000
Interest payment on July 1
Dr Interest expense($200,000*9%*3/12) $4500
Cr Cash $4500
Accrued interest on 31 December:
Dr Interest expense($200,000*9%*3/12) $4500
Cr Interest payable $4500
Garfunkel
Issuance of bond:
Dr Cash $105000
Cr Bonds payable $100,000
Cr Interest expense $5000
Interest payment on July 1
Dr Interest expense($100,000*12%*6/12) $6000
Cr Cash $6000
Accrued interest on 31 December:
Dr Interest expense($100,000*12%*6/12) $6000
Cr Interest payable $6000
Explanation:
The bond issued on January 1 , 2014 was issued at par,hence $200,000 cash proceeds were received.
The required journal entries are:
Dr Cash $200,000
Cr Bonds payable $200,000
The second bond was issued at par plus the accrued interest, as a result, the issue price is computed thus:
Par value $100000
plus accrued interest to date($100000*12%*5/12) $5000
Issued amount $105000
The journal entries as follows
Dr Cash $105000
Cr Bonds payable $100,000
Cr Interest expense $5000
