Question

The Colson Company issued $300,000 of 10% bonds on January 1, 2020. The bonds are due January 1, 2025, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson's journal entries for (a) the January issuance, (b) the July 1 interest payment and (c) the December 31 adjusting entry. Question 2: Assume the bonds in question 1 were issued at 98. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume The Colson Company records straight line amortization semiannually. Question 3 Assume the bonds in question 3 were issued at 103. Prepare the journal entries for (a) January 1, (b) July 1, and (c) December 31. Assume the Colson Company records straight line amortization semiannually.

Answer 1

Answer:

1. The bonds are issued at face value:

(a) Jan 1

Dr Cash                    300,000

Cr Bond payable    300,000

( to record cash receipt from bond issuance at par)

(b) Jul 1

Dr Interest expenses           15,000

Cr Cash                                15,000

( to record payment of interest expenses calculated as 300,000 x 10% /2)

(c) Dec 31

Dr Interest expenses           15,000

Cr Interest payable             15,000

( to record incurred of interest expenses calculated as 300,000 x 10% /2)

2. The bonds in question 1 were issued at 98.

(a) Jan 1

Dr Cash                                    294,000

Dr Discount on Bond                  6,000

Cr Bond Payable                    300,000

( to record cash receipt from bond issuance in which Cash receipt = 300,000 * 98%; Bond Payable is recorded at par $300,000; The difference is recorded as Dr Discount on Bond $6,000)

(b) Jul 1

Dr Interest expenses                 15,600

Cr Discount on bond                  6,00

Cr Cash                                     15,000

( to record interest expenses incurred which is consists of $15,000 cash payment and the amortization of Discount on bond account calculated as 6,000/10 interest payment period)

(c) Dec 31

Dr Interest expenses                 15,600

Cr Discount on bond                  6,00

Cr Interest Payable                    15,000

( to record interest expenses incurred which is consists of $15,000 interest payable plus the amortization of Discount on bond account calculated as 6,000/10 interest payment period).

3. Assume the bonds in question 3 were issued at 103:

(a) Jan 1

Dr Cash                                 309,000

Cr Premium on Bond               9,000

Cr Bond payable                  300,000

( to record cash receipt from bond issuance in which Cash receipt = 300,000 * 103%; Bond Payable is recorded at par $300,000; The difference is recorded as Cr Premium on Bond $9,000)

(b) Jul 1

Dr Interest expenses                    14,100

Dr Premium on bond                       900

Cr Cash                                         15,000

( to record interest expenses incurred which is consists of $15,000 cash payment minus the allocation of Premium on bond account calculated as 9,000/10 interest payment period)

(c) Dec 31

Dr Interest expenses                    14,100

Dr Premium on bond                       900

Cr Interest Payable                       15,000

( to record interest expenses incurred which is consists of $15,000 interest payable minus the allocation of Premium on bond account calculated as 9,000/10 interest payment period)

Explanation: