Question

On June 1, 2015, Perry Corp. issued $4,000,000, 9%, 5-year bonds at face value. The bonds were dated June 1, 2015, and pay interest semiannually on June 1 and December 1. Financial statements are prepared annually on December 31. Instructions (a) Prepare the journal entry to record the issuance of the bonds. (b) Prepare the adjusting entry to record the accrual of interest on 12/31/15. (c) Show the balance sheet presentation of all bond related accounts (bonds and interest) on 12/31/15. (d) Prepare the journal entry to record payment of interest on June 1, 2016, assuming no accrual of interest from 1/1/16 to 6/1/16. (e) Prepare the journal entry to record payment of interest on 12/1/16. (f) Assume that on 12/1/16, after making the interest payment, Perry calls the bonds at 102. Record the redemption of the bonds.

Answer 1

	Date	General Journal	Debit	Credit
(a)	6/1/15	Cash	4000000
		Bonds payable		4000000
		(To record issue of bonds)
(b)	12/31/15	Interest expense (9% x $4000000 x 1/12)	30000
		Interest payable		30000
		(To record accrual of interest on bonds)

(c)

Perry Corp.
Balance Sheet (Partial)
December 31, 2015
Current Liabilities:
Interest payable	30000
Long-term Liabilities:
Bonds payable	4000000

	Date	General Journal	Debit	Credit
(d)	6/1/16	Interest expense	180000
		Cash (9% x $4000000 x 1/2)		180000
		(To record payment of interest)
(e)	12/1/16	Interest expense	180000
		Cash (9% x $4000000 x 1/2)		180000
		(To record payment of interest)
(f)	12/1/16	Bonds payable	4000000
		Loss on retirement of bonds payable	80000
		Cash ($4000000 x 102/100)		4080000
		(To record redemption of bonds payable)