Question

On January 1, Innovative Solutions, Inc. issued $220,000 in bonds at face value. The bonds have a stated interest rate of 5 percent. The bonds mature in 10 years and pay interest once per year on December 31.Required:1, 2 & 3. Complete the required journal entries to record the bond issuance, interest payment on December 31, early retirement of the bonds. Assume the bonds were retired immediately after the first interest payment at a quoted price of 103. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

Explanation:

The journal entries are shown below/:

On January 1

Cash A/c Dr $220,000

      To Bonds payable A/c $220,000

(Being the issuance of bond is recorded)

On December 31

Interest expense A/c Dr  $11,000

         To Cash A/c  $11,000

(Being the interest expense is recorded)

The computation is shown below:

= Face value of bond × interest rate

= $220,000 × ×5%

= $11,000

Bonds payable A/c Dr $220,000

Loss on redemption A/c Dr $6,600

        To Bonds payable A/c $226,600      ($220,000 × 1.03)

(Being the retirement of the bond is recorded)