Question

Legend Company uses the straight-line method for amortization of all bond premium & discounts. During fiscal year 2018 Legend had the following bond payable transactions:

January 2, issued ten, $1,000 bonds at 101. These 5-year bonds are dated January 1, 2017. The contract interest rate is 6%. Interest is payable semi-annual on January 1 and July 1.

July 1, Legend issued $400,000 of 10%, 10-year bonds. The bonds are dated January 1, 2017 were issued at 90, and pay interest on July 1 and January 1.

October 1, Legend issued 10-year bonds $10,000 face value bonds for $10,860 cash. The bonds have a stated rate of 8%. Interest is payable on October 1 and April 1.

Use this information to prepare General Journal entries for the three bonds issued and any interest accruals and payments for the fiscal year 2018. (Round all calculations to nearest whole dollar.)

Answer 1

a) Journal entry

Date	account and explanation	Debit	Credit
Jan 1	Cash	101000
	Bonds payable		100000
	Premium on bonds payable		1000
July 1	Interest expense	2900
	Premium on bonds payable (1000/10)	100
	Cash (100000*6%*6/12)		3000
Dec 31	Interest expense	2900
	Premium on bonds payable	100
	Interest payable		3000

b) Journal entry

Date	account and explanation	Debit	Credit
July 1	Cash	360000
	Discount on bonds payable	40000
	Bonds payable		400000
Dec 31	Interest expense	22000
	Discount on bonds payable (40000/20)		2000
	Interest payable (400000*10%*6/12)		20000

a) Journal entry

Date	account and explanation	Debit	Credit
Oct 1	Cash	10860
	Bonds payable		10000
	Premium on bonds payable		860
Dec 31	Interest expense	178
	Premium on bonds payable (860/10)*3/12	22
	Interest payable (10000*8%*3/12)		200