Question

Problem 2

Smith Corporation received approval to issue $1,000,000 of 9%, 20 year Bonds.  The Bonds have interest payment dates of September 30^th and March 31^st.  The Bonds are issued at a price of 100 plus accrued interest on May 31^st, 2017. Prepare the journal entries that will be needed on (1) May 31,2017 to record the issuance of the bonds, (2) September 30^th2017 to record the first payment of interest, and December 31, 2017 to record the adjusting entry necessary related to the bonds.

May 31

Sept 30

Dec 31

Answer 1

	Date	Accounts Titles & Explanation	Debit	Credit
1	May 31	Cash	1,015,000
		Bonds Payable		1,000,000
		Interest Payable ($1,000,000 * 9 % * 2/12)		15,000
		(To record the issuance of the bonds)
2	Sept 30	Interest Expense ($1,000,000 * 9 % * 4/12)	30,000
		Interest Payable	15,000
		Cash ($1,000,000 * 9 % * 6/12)		45,000
		(To record the first payment of interest)
3	Dec 31	Interest Expense ($1,000,000 * 9 % * 3/12)	22,500
		Interest Payable		22,500
		(To record adjusting entry for accrued interest)