Question

Blossom Corporation issued $564,000 of 7% bonds on May 1, 2020. The bonds were dated January 1, 2020, and mature January 1, 2023, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest.
Prepare Blossom’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry

Answer 1

Answer:

The Journal entries are as follows:

(a) the May 1 issuance,

Cash A/c           Dr. 577,160

To Bonds - 7%                        $564,000

To Accrued interest                $13,160

(To record the issuance)

Accrued Interest = $564,000 × 0.07 × (4/12)

                             = $13,160

(b) the July 1 interest payment,

Interest Payment A/c   Dr. $19,740

To cash A/c                                       $19,740

(To record the interest payment)

Interest payment = $564,000 × 0.07 × (6/12)

                             = $19,740

(c) the December 31 adjusting entry

Interest payable A/c    Dr. $19,740

To Bonds - 7%                                  $19,740

(To record the adjusting entry)