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Horngren'S Financial And Managerial Accounting
Found in: Page 666

Short Answer

Analyzing and journalizing bond transactions

On January 1, 2018, Electricians Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $400,000. The bonds pay interest on June 30 and December 31. The issue price of the bonds is 104.

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.

Cash debited by $416,000, 8% bond payable credited by $400,000 and premium on bond payable credited by $16,000.

See the step by step solution

Step by Step Solution

Step 1: Definition of bonds payable

A bond is a type of long-term debt that large companies issue to fulfill cash requirements.

Step 2: Entry for the issue of bonds payable

Date

Particulars

Debit

Credit

January 1, 2018

Cash

$416,000

8% Bonds Payable

$400,000

Premium on Bonds Payable

$16,000

(Being entry for the issue of bonds)

Step 3: Payment of semi-annual interest and premium amortization

Date

Particulars

Debit

Credit

June 30, 2018

Interest Expense

$16,000

Premium on bonds

$400

Cash

$16,400

(Being entry for the payment of interest)

Step 4: Payment of semi-annual interest and premium amortization

Date

Particulars

Debit

Credit

December 31, 2018

Interest Expense

$16,000

Premium on bonds

$400

Cash

$16,400

(Being entry for the payment of interest)

Step 5: Maturity of the bonds

Date

Particulars

Debit

Credit

December 31, 2037

8% Bonds Payable

$400,000

Cash

$400,000

(Being entry for the retirement of bonds)

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