Question

Doyle Company issued $381,000 of 10-year, 7 percent bonds on January 1, Year 1. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land was leased for an annual $73,500 of cash revenue, which was collected on December 31 of each year, beginning December 31, Year 1. Required a. Prepare the journal entries for these events, and post them to T-accounts for Year 1 and Year 2.

Answer 1

Answer:

Year 1:

Issue of bonds:

Dr Cash                  $381,000

Cr  Bonds payable                  $381,000

Purchase of  land:

Dr Land                 $381,000

Cr Cash                                  $381,000

Receipt of lease rental:

Dr Cash                $73,500

Cr Lease revenue                 $73,500

Payment of coupon interest:

Dr interest expense  $26,670

Cr Cash                                     $26,670

Year 2

Receipt of lease rental:

Dr Cash                $73,500

Cr Lease revenue                 $73,500

Payment of coupon interest:

Dr interest expense  $26,670

Cr Cash                                     $26,670

Find attached t accounts.

Explanation:

Upon the issue of bonds for $381,000 the cash account would be debited with $381,000 while bonds payable account is credited with $381,000.

However,when the cash proceeds is invested in land,the land account would be debited with $381,000,while the cash account is credited with $381,000.

Besides,on receipt of annual lease rental the cash account is debited with $73,500 while the lease revenue is credited with $73,500.

The coupon interest is $381,000*7%=$26670

This would necessitate debiting interest expense with $26,670  while cash is credited with same amount.

Download xlsx