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Chapter 12: Q9SE_3 (page 657)

Journalizing bond transactions including retirement at maturity

McQueen Company issued a $100,000, 7.5%, 10-year bond payable. Journalize

the following

transactions for McQueen Company, and include an explanation for each

entry:

a. Issuance of the bond payable at face value on January 1, 2018.

b. Payment of semiannual cash interest on July 1, 2018.

c. Payment of the bond payable at maturity, assuming the last interest

payment had

already been recorded. (Give the date.)

Short Answer

Expert verified

Answer:

The bonds payable account is debited with $100,000, and the cash account is

credited with $100,000.

Step by step solution

01

Definition of bond maturity

The date at which the bonds become due or date at which company have to made

payment according to bond agreement is known as the maturity of the bonds.

02

Entry for the issue of bond

Date
Particulars
Debit
Credit
January 1, 2028
7.5% Bonds Payable
$100,000


Cash

$100,000

(Being Entry for the retirement of

bonds)



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Most popular questions from this chapter

Determining bond amounts

Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable

at 99.5. Interest is paid semiannually.

Requirements

1. How much cash did Savvy receive when it issued the bonds payable?

2. How much must Savvy pay back at maturity?

3. How much cash interest will Savvy pay each six months?

Journalizing bond issuance and interest payments

On June 30, Parker Company issued 11%, five-year bonds payable with a face value

of $120,000. The bonds are issued at face value and pay interest on June 30 and

December 31.

Requirements

1. Journalize the issuance of the bonds on June 30.

2. Journalize the semiannual interest payment on December 31

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payablewith face value of $1,000,000. These bonds pay interest on June 30 and December 31.The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the lastinterest payment has already been recorded.

What type of account is Premium on Bonds Payable? What is its normal balance? Is it added to or subtracted from the Bonds Payable account to determine the carrying amount?

Reporting liabilities on the balance sheet and computing debt toequity ratio

The accounting records of Compass Wireless include the following as of December31, 2018:

Accounts Payable \( 74,000 Salaries Payable \) 7,500

Mortgages Payable (long-term) 80,000 Bonds Payable (current portion) 25,000

Interest Payable 21,000 Premium on Bonds Payable 13,000

Bonds Payable (long-term) 63,000 Unearned Revenue (short-term) 2,700

Total Stockholders’ Equity 145,000

Requirements

1. Report these liabilities on the Compass Wireless balance sheet, including headingsand totals for current liabilities and long-term liabilities.

2. Compute Compass Wireless’s debt to equity ratio at December 31, 2018.
See all solutions

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