Question

A company issued $1,000,000 of 30-year, 8% callable bonds on April 1, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:

Answer 1

Explanation:

The journal entries are shown below:

1. Cash A/c Dr  $1,000,000

        To Bonds payable A/c  $1,000,000

(Being the bond is issued)

2. Interest expense A/c Dr $40,000  

         To Cash A/c $40,000

(Being the interest expense is recorded)

The computation is shown below:

= ($1,000,000 × 8% × 6 months ÷ 12 months)

= $40,000

3. Bond payable A/c Dr $1,000,000

   Loss on redemption of bond A/c Dr $40,000

             To Cash A/c $1,040,000

(Being the bond issue called is recorded)