On May 1, 2019, Whispering Winds Corp. issued $570,000, 8%, 5-year bonds at face value. The...
On May 1, 2019, Whispering Winds Corp. issued $570,000, 8%, 5-year bonds at face value. The bonds were dated May 1, 2019, and pay interest annually on May 1. Financial statements are prepared annually on December 31.
Prepare the journal entry to record the issuance of the bonds
Prepare the adjusting entry to record the accrual of interest on December 31, 2019.
Show the balance sheet presentation on December 31, 2019.
Prepare the journal entry to record payment of interest on May 1, 2020.
Prepare the adjusting entry to record the accrual of interest on December 31, 2020.
Assume that on January 1, 2021, Whispering Winds pays the accrued bond interest and calls the bonds at 105. Record the payment of interest and redemption of the bonds.
Homework Answers
a) Journal entry
| Date | account and explanation | debit | credit |
| May 1 | Cash | 570000 | |
| Bonds payable | 570000 | ||
| (To record bond issue) |
b) Adjusting entry
| Date | account and explanation | debit | credit |
| Dec 31 | Interest expense (570000*8%*8/12) | 30400 | |
| Interest payable | 30400 | ||
| (To record accrued interest) |
c) Balance sheet
| Current liabilities | |
| Interest payable | 30400 |
| Long term liabilities | |
| Bonds payable | 570000 |
Journal entry
| No | Date | account and explanation | debit | credit |
| D | May 1 | Interest expense | 30400 | |
| Interest expense | 15200 | |||
| Cash | 45600 | |||
| (To record interest paid) | ||||
| e | Dec 31 | Interest expense | 30400 | |
| Interest payable | 30400 | |||
| (To record accrued interest) | ||||
| f | Jan 1,2021 | Interest payable | 30400 | |
| Cash | 30400 | |||
| (To record interest paid) | ||||
| Bonds payable | 570000 | |||
| Loss on redemption of bonds payable | 28500 | |||
| Cash (570000*1.05) | 598500 | |||
| (To record redemption) |
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3.
Whispering Winds sold for $498,500...
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