Question

Thomson Co. produces and distributes semiconductors for use by computer manufacturers. Thomson Co. issued $840,000 of 10-year, 4% bonds on May 1 of the current year at face value, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year.

May 1 Issued the bonds for cash at their face amount.
Nov. 1 Paid the interest on the bonds.
Dec. 31 Recorded accrued interest for two months.

Answer 1

Answer and Explanation:

The journal entries are shown below:

On May 1

Cash $840,000

To 4% Bonds Payable $840,000

(Being the issued of the face value is recorded)

On Nov 1

Interest Expense $16,800

To Cash A/c $16,800

(Being the interest expense is recorded)

The computation is shown below:

= $840,000 × 4% × 6 months ÷ 12 months

= $16,800

On Dec 31

Interest Expense $5,600

To Interest Payable $5,600

(Being the accrued interest is recorded)

The computation is shown below:

= $840,000 × 4% × 6 months ÷ 12 months

= $5,600