Question 1. On July 1, 2016 Alpha Company sells $1,000,000 face value of 10% five year bonds which call for semiannual interest payments. The bonds are dated April 1, 2016 so these bonds are issued between interest dates. The market rate at the date of issue is also 10%. For simplicity, use a 360-day year and 30 day months for all calculations.
Record the journal entries for the issuance of the bonds
Record the journal entries for the first interest payment due on October 1, 2016. Assume that interest has not been accrued at each month end.
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Date
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Account
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Debit
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Credit
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4/1/2016
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Cash
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mce_markernbsp; 1,000,000
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Bonds payable
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mce_markernbsp; 1,000,000
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1/10/2016
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Interest Expense
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mce_markernbsp; 25,000
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interest Payable
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Question 2. On April 1, 2016 Alpha Company sells $1,000,000 face value of 10% five year bonds which call for semiannual interest payments. The bonds are dated April 1, 2016 so these bonds are issued on an interest date. The market rate at the date of issue is 8%. Use the straight line method of amortization of any bond premium or discount. For simplicity, use a 360-day year and 30 day months for all calculations.
Record the journal entries for the issuance of the bonds
Record the journal entries for the first interest payment due on October 1, 2016. Assume that interest has not been accrued at each month end.
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Date
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Account
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Debit
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Credit
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4/1/2016
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Cash
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mce_markernbsp; 1,081,109
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Bonds payable
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mce_markernbsp; 1,000,000
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Premium on Bonds
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mce_markernbsp; 81,109
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1/10/2016
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Interest Expense
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mce_markernbsp; 41,889.10
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Premium on Bonds
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mce_markernbsp; 8,110.90
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Cash
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mce_markernbsp; 50,000
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