Question

Swifty Corporation issued 3,100 5%, 5-year, $1,000 bonds dated January 1, 2017, at face value. Interest is paid each January 1. (a) Prepare the journal entry to record the sale of these bonds on January 1, 2017. (b) Prepare the adjusting journal entry on Dec 31, 2017, to record interest expense. (c) Prepare the journal entry on Jan 1, 2018, to record interest paid.

Answer 1

Answer:

(A)

cash 3,100,000

bonds payable 3,100,000

(B)

interest expense   155,000

interest payable                      155,000

(C)

interest payable   155,000

    cash                                      155,000

Explanation:

(A) the bonds were issued at par value so no discount or premium should be aknowledge

(B) 3,100 bonds x 1,000 face value x 5% interest = 155,000 interest expense

this interest expense is not paid at dec 31th so it is interest payable

(C) write-off the payable and the decrease in cash for the amount paid.