[seth1991]

On March 1, Year 1 a firm issues $375,000 bonds at par value plus accrued interest. The stated rate on the bonds was 12% and the bonds pay interest semi-annually on June 30 and December 31. Gives the entries necessary to record:
1. the issuance of the bonds
2. the payment of interest on June 30, Year 1
3. the payment of interest on Dec 31, Year 1

[ROLCAM]

You have a go.
Submit the entries here.
We shall endeavour to correct them for you.
Do not forget the narrations.

[seth1991]

1. cash 382,500
Bonds payable 375,000
Interest expense 7,500
2. interest expense 22,500
Cash 22,500
3. interest expense 22,500
Cash 22,500

[ROLCAM]

I specifically asked you to include a narration
For every Journal Entry.
Had you done so, you would have realised
That Journal entry 2 could not possibly have
The same amount of interest as J/e no.3.
Go back to J/E no.2 and correct it,
Making sure you use the correct number of months.

[seth1991]

How about this:
March 1, Year 1
Cash 382,500
Bonds payable 375,000
Interest expense 7,500
(issuance of the bonds)


June 30, Year 1
Interest Expense 15,000
Interest Payable 7,500
Cash 22,500
(payment of interest on June 30, Year 1 to cover interest for Jan, Feb)

Dec 31, Year 1
Interest Expense 22,500
Cash 22,500
(payment of interest on Dec 31, Year 1 to cover full 6 months)

[ROLCAM]

1) The narration does not explain the interest involved period.

2) This is incorrect. The interest is for 4 months.Read the narration.

Have another go!

[seth1991]

For number two the bond was issued March 1, the last interest payment was December 31, so Dec Jan Feb Mar Apr May Jun is due on June 30. That would be 375,000(.12)= 45000 interest for the year so I divided by 2 and get 6 months interest of 22,500. I need to account for the 7, 500 interest expense for Jan and Feb in 1, so I take the 22,500 -7,500=15,000 Dr with the 7,500 Dr and Cr cash for the full 22,500. Am I thinking this through properly?

[ROLCAM]

1. the issuance of the bonds

DR Bonds Account -----------375,000
CR Bank Account ------------------------375,000
Being issuing of Bonds @ 12% per annum


2. the payment of interest on June 30, Year 1

DR Interest Paid --------------15,000
CR Bank Account------------------------15,000

Being Interest Paid on Bonds @12% p.a.
For four months period March to June.

3. the payment of interest on Dec 31, Year 1

DR Interest Paid --------------22,500
CR Bank Account------------------------22,500

Being Interest Paid on Bonds @12% p.a.
For six months period July to December.

[seth1991]

Shouldn't there be an entry for accrued interest?
On March 1, Year 1 a firm issues $375,000 bonds at par value plus accrued interest.
Since the bond was not issued on one of the interest dates, June 30 and December 31 shouldn't the purchaser of the bond pay the accrued interest which they will regain when the bond matures?

[ROLCAM]

The date of the issuance has got nothing to do with the interest dates.
The issuance was made March 1st .
The way the wording reads is meant that the amount includes any accrued
Amounts from previous issues.