Question

The Martinez Company issued $370,000 of 11% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value.

Prepare Martinez’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Answer 1

Journal entries for the above given situations

7-1-2017 bank a/c ......................Dr $370000

To 11% bonds a/c $370000

(Being 11% bonds issued and   

amount received through bank)

Interest calculations till the date 1-7-2017

$370000×11/100×6/12 = $20350

Journal entries on 1-7-2017

Interest payable on 11% bonds a/c ...............Dr $20350

To bond holders a/c $20350

(Being interest was due on 1 July the

Due journal entry was passed)

Bond holders a/c ...........................................Dr $20350

To bank a/c $20350

(Being interest amount due on 11% bonds

Paid through bank)

Interest calculations of bonds for the 6 months of July - december $370000×11/100×6/12= $20750.

Journal entries on 31-12-2017

Interest on 11% bonds a/c............................Dr $20350

To bond holders a/c $20350

(Being interest amount due on 31-12-2017

Has been recorded)

Bond holders a/c. ....................................Dr $20350

To bank a/c $20350

(Being interest amount due paid through

Bank to bond holders)

Profit and loss a/c ...................................Dr $40700

To interest on 11% bonds a/c $40700

(Being the total interest expense on 11% bonds

For a complete year was transfered to profit and

Loss a/c )

Here we assumed that the accounting year as january - december . So all the above mentioned entries are valid to accounting year january - december.

Thank you.