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Horngren'S Financial And Managerial Accounting
Found in: Page 664

Short Answer

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 109.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.

Interest expense debited by $40,000, premium on bonds debited by $2,250 and cash credited by $42,250.

See the step by step solution

Step by Step Solution

Step 1: Definition of interest expense

Interest expense is the expense paid the by the company to the other party for using their funds.

Step 2: Entry for the issue of bonds payable

Date

Particulars

Debit

Credit

December 31, 2018

Interest Expense

$40,000

Premium on bonds

$2,250

Cash

$42,250

(Being entry for the payment of interest)

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