Question

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.

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