contestada

Brussels Enterprises issues bonds at par dated January 1, 2019, that have a $2,100,000 par value, mature in four years, and pay 7% interest semiannually on June 30 and December 31. 1. Record the entry for the issuance of bonds for cash on January 1. 2. Record the entry for the first semiannual interest payment and the second semiannual interest payment. 3. Record the entry for the maturity of the bonds on December 31, 2022 (assume semiannual interest is already recorded)

Respuesta :

Answer:

1.

1 Jan 2019

Cash                               2100000 Dr

      Bonds Payable              2100000 Cr

2.

30 June 2019

Interest expense             73500 Dr

       Cash                           73500 Cr

31 Dec 2019

Interest expense             73500 Dr

       Cash                           73500 Cr

3.

31 Dec 2022

Bonds Payable                    2100000 Dr

        Cash                                   2100000 Cr

Explanation:

1.

The bonds are assumed to be issued at par value as the market interest rate is not given and is assumed to be the same as the interest rate on bonds of 7%. The issuance of bonds on par is recorded as a debit to the cash received against the bonds and a credit to the bonds payable account.

2.

The semi annual interest payment on bond is,

Bond interest-semi annual = 2100000 * 0.07 * 6/12 = 73500

The interest rate given is the annual interest rate of 7%. That is why we multiply it with 6/12 to get the semi annual interest.

3.

The disposal of bonds will be a reversal of the issuance entry. The bonds payable will be debited by the par value amount and the cash will be credited.