Question

On January 1, Year 1, Bell Corp. issued $180,000 of 10-year, 6 percent bonds at their face amount. Interest is payable on December 31 of each year with the first payment due December 31, Year 1. Required Prepare all the general journal entries related to these bonds for Year 1 and Year 2.

Answer 1

Answer:

Journal entries on January 1,year 1:

Dr Cash                     $180,000

Cr bonds payable                       $180,000

Journal entries on 31st December year 1:

Dr interest expense          $10,800

Cr Cash                                            $10,800

Journal entries on 31st December year 2:

Dr interest expense          $10,800

Cr Cash                                            $10,800

Explanation:

Since the bonds were issued at par ,it means the cash realized from the issuance is $180,000 which would debited to cash account and credited to bonds payable account.

On 31st December ,year 1 the first interest is paid which is calculated thus:

$180,000*6%=$10,800

The $10,800 is debited to interest expense account and credited to cash(or to interest payable if cash is not paid immediately)

On 31st December ,year 2 the first interest is paid which is calculated thus:

$180,000*6%=$10,800

The $10,800 is debited to interest expense account and credited to cash(or to interest payable if cash is not paid immediately)