Question

Reen Mountain Power Company obtained authorization to issue 20-year bonds with a face value of $10 million. The bonds are dated May 1, 2018, and have a contract rate of interest of 10 percent. They pay interest on November 1 and May 1. The bonds were issued on August 1, 2018, at 100 plus three months' accrued interest.
Instructions
Prepare the necessary journal entries in general journal form on the following.
a. August 1, 2018, to record the issuance of the bonds.
b. November 1, 2018, to record the first semiannual interest payment on the bond issue.
c. December 31, 2018, to record interest expense accrued through year-end. (Round to the nearest dollar.)
d. May 1, 2019, to record the second semiannual interest payment. (Round to the nearest dollar.)
e. What was the prevailing market rate of interest on the date that the bonds were issued? Explain.

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Answer 1

Answer:

Date particulars Amount($) Amount($) 2011 1-Aug Cash A/c………………………………….Dr 10250000 Bonds Payable A/c 10000000 Bond Interest Payable A/c 250000 (Being bonds issued) 1-Nov Bond Interest Payable A/c………………………Dr 250000 Bond Interest Expense A/c………………………Dr 250000 Cash A/c 500000 (being semi-annual interest paid) 31-Dec Bond Interest Expense A/c……………………..Dr 166667 Bond Interest payable A/c 166667 Being 2 months interest expense accrued) 2012 1-May Bond Interest payable.