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On January 1, 2018, MCU issued 6%, 20-year bonds payable with face value of $1,100,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 106. Journalize the following bond transactions:
a. Issuance of the bonds on January 1, 2018.
b. Payment of interest and amortization on June 30, 2018.
c. Payment of interest and amortization on December 31, 2018.
d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.
Expert Answer
JOURNAL ENTRIES :
| DATE | ACCOUNTS & EXPLANATION | DEBIT | CREDIT |
| Jan1 | |||
| 2018 | Cash a/c | 1166000 | |
| 6%Bonds payable a/c | 1100000 | ||
| Premium on bonds payable (1100000*6/100) | 66000 | ||
| (To record issuance of bonds payable) | |||
| June 30 | Interest expenses a/c (1100000*6%*6/12) | 33000 | |
| premium on bonds payable (66000/40) | 1650 | ||
| Cash a/c | 34650 | ||
| (To record interst paid) | |||
| Dec 31 | Interest expenses a/c (1100000*6%*6/12) | 33000 | |
| premium on bonds payable (66000/40) | 1650 | ||
| Cash a/c | 34650 | ||
| (To record interest and amortization) | |||
| 2037 Dec 31 | 6% Bonds payable a/c | 1100000 | |
| Cash a/c | 1100000 | ||
| (To record maturity of bonds payable) | |||
