Question

On January 1, 2013, Grant Corporation issued $600,000, 8%, 10-year bonds dated January 1, 2013, at 104. The bonds pay semi-annual interest on January 1 and July1. The company uses the straight-line method of amortization and has a calendar year end. Instructions Prepare all the journal entries that Grant Corporation would make related to this bond issue through January 1, 2014. Be sure to indicate the date on which the entries would be made.

Answer 1

January 1, 2013 Bonds are issued

Dr Cash 624,000

Cr Bonds payable 600,000

Cr Premium on bonds payable 24,000

July 1, 2013 first coupon is paid

Dr Interest expense 22,800

Dr Premium on bonds payable 1,200

Cr Cash 24,000

December 31, 2013 accrued interest

Dr Interest expense 22,800

Cr Interest payable 22,800

January 1, 2014 second coupon is paid

Dr Interest payable 22,800

Dr Premium on bonds payable 1,200

Cr Cash 24,000

Step-by-step explanation:

issued $600,000 in 8%, 10 year bonds that pay semi annual coupons.

Sales price 104 = $624,000

premium on bonds payable $24,000

amortization using the straight line method = $24,000 / 20 = $1,200 per coupon paid

accrued interests on bonds payable must be recorded on December 31, 2013.