Question

Ex. 14-120—Entries for Bonds Payable.

Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co.

(a)   On April 1, 2009, Quirk issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2019.

(b)   On July 1, 2011 Quirk retired $150,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.

Answer 1

	Journal Entries
A	Particulars	Debit	Credit
	Cash a/c	$537,868
	To bonds payable		$500,000
	To interest Expense (From Jan to March accrued interest) ($500,000*9%*3/12)		$11,250
	To premium on bonds payable		$26,618
	Bonds maturity in months =117 (from Apr 2009 to Jan 2019)
	Balance no of months to mature = 90 (from July 2011 to 2019)
	Bonds retired = 150,000
	% of bonds retired = 150,000/500,000 = 30%
B	Interest exp (Bal fig)	$6,340
	Premium on bonds payable (26,618*30%*6/117)	$410
	To cash a/c (Interest from Jan to June 150,000*9%*6/12)		$6,750
	Bonds payable	$150,000
	Premium on bonds payable (26,618*30%*90/117)	$6,142
	To cash acc (150,000*102%)		$153,000
	To gain on redemption (Bal fig)		$3,142