Question

On May 1, 2018, Green Corporation issued $2,500,000 of 12% bonds, dated January 1, 2018, for $2,460,000 plus accrued interest. The bonds mature on December 31, 2032, and pay interest semiannually on June 30 and December 31. Green's fiscal year ends on December 31 each year.

Required:
1. Determine the amount of accrued interest that was included in the proceeds received from the bond sale.
2. Prepare the journal entry for the issuance of the bonds.

Accrued interest =

record the entry for bond issuance

Answer 1

Requirement 1

Accrued interest = $100,000

Requirement 2

Date	General journal	Debit	Credit
May-01	Cash	$ 2,560,000.00
	Discount on bonds payable	$        40,000.00
	Bonds payable		$ 2,500,000.00
	Interest expense		$      100,000.00
	(To record issuance of bonds)

Working

Interest accrued for 4 months {(2500000 x 12%)/12 x 4}

$ 100,000.00