Question

P10.4A (LO 3, 4), AP On October 1, 2021, Kristal Corp. issued $700,000, 5%, 10-year bonds at face value. The bonds were dated October 1, 2021, and pay interest annually on October 1. Financial statements are prepared annually on December 31,

Instructions

a. Prepare the journal entry to record the issuance of the bonds.

b. Prepare the adjusting entry to record the accrual of interest on December 31, 2021.

c. Show the balance sheet presentation of bonds payable and bond interest payable on December 31, 2021.

d. Prepare the journal entry to record the payment of interest on October 1, 2022.

e. Prepare the adjusting entry to record the accrual of interest on December 31, 2022.

f. Assume that on January 1, 2023, Kristal pays the accrued bond interest and calls the bonds. The call price is 104. Record the payment of interest and redemption of the bonds.

Answer 1

a.

Date	Account Titles	Debit	Credit
Oct-01	Cash	$        700,000
2021	Bonds Payable		$     700,000

b.

Date	Account Titles	Debit	Credit
Dec-31	Interest Expense	$            8,750
2021	Interest Payable		$         8,750

c.

Liabilities
Current Liabilities
Interest Payable	$            8,750
Non-Current Liabilities
Bonds Payable	$        700,000

d.

Date	Account Titles	Debit	Credit
Oct-01	Interest Expense	$          26,250
2022	Interest Payable	$            8,750
	Cash		$       35,000

e.

Date	Account Titles	Debit	Credit
Dec-31	Interest Expense	$            8,750
2022	Interest Payable		$         8,750

f.

Date	Account Titles	Debit	Credit
Jan-01	Interest Payable	$            8,750
2023	Cash		$         8,750
Jan-01	Bonds Payable	$        700,000
2023	Loss on Retirement of Bonds	$          28,000
	Cash		$     728,000

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