Question

ABC sells $12,000,000 in 25 year - 5% bonds that pay annual interest. The bonds are sold to yield only 4% because of recent declines in interest rates. Record the journal entries to record the issue of the bonds and record the first two interest payments.

Answer 1

Value of bonds = $12000000

Life of bonds = 5 years

Interest rate = 5%

Interest for 1st year = $12000000 × 5% =$600000

Interest for 2nd year = $12000000×5% = $600000

Journal entries :-

Event	Particulars	Debit ($)	Credit ($)
Issue of bonds	bank	12000000
	To bonds payable		12000000
	(Being bonds issued)
1st year interest	interest expense	600000
	To bank		600000
	(Being 1st year interest paid on bonds)
2nd year interest	interest expense	600000
	To bank		600000
	(Being 2nd year interest paid on bonds)

These are all the journal entries required to solve the above given question.

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Thank you.