Question

At the end of 2020, Majors Furniture Company failed to accrue $61,000 of interest expense that...

At the end of 2020, Majors Furniture Company failed to accrue $61,000 of interest expense that accrued during the last five months of 2020 on bonds payable. The bonds mature in 2032. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2021, when the semiannual interest was paid:

Interest expense 73,200
Discount on bonds payable 1,200
Cash 72,000

   
Required:
1-a. Prepare any journal entries necessary to correct the error, as well as any adjusting entry for 2021 related to the situation described. (Ignore income taxes.)
1-b. Prepare the journal entries that should have been recorded, if done correctly to start.

Homework Answers

Answer #1

Answer :-

1a
1 Retained earnings 61,000
       Interest expense 61,000
Interest expense 61,000
        Discount on bonds payable 1,000 (1,200*5/6)
        Interest payable 60,000 (72,000*5/6)
1b
1 Interest expense 61,000
        Discount on bonds payable 1,000 (1,200*5/6)
        Interest payable 60,000 (72,000*5/6)
2 Interest expense 12,200
Interest payable 60,000
        Discount on bonds payable 200 =1,200*1/6
        Cash 72,000
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