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Example #3, On January 1, 2019 a company issues 100 bonds, each for $1,000, for par,...

Example #3, On January 1, 2019 a company issues 100 bonds, each for $1,000, for par, as the interest rate on the bond (stated/coupon rate) is 4% and the market rate is also 4%.  They then used this cash to purchase an automobile for $100,000 cash.  The bond is to be paid in at the end of THREE years (December 31, 2021).

  1. PREPARE THE JOURNAL ENTRIES FOR 2019:

Date

Account Name

Debit

Credit

1/1/2019

12/31/2019
  1. PREPARE THE JOURNAL ENTRIES FOR 2020:

Date

Account Name

Debit

Credit

12/31/2020
  1. PREPARE THE JOURNAL ENTRIES FOR 2021:

Date

Account Name

Debit

Credit

12/31/2021
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Answer #1
  1. PREPARE THE JOURNAL ENTRIES FOR 2019:

Date

Account Name

Debit

Credit

1/1/2019

 Cash 100000
Bonds payable 100000

12/31/2019

 Interest expense (100000*4%) 4000
Cash 4000
  1. PREPARE THE JOURNAL ENTRIES FOR 2020:

Date

Account Name

Debit

Credit

12/31/2020

 Interest expense 4000
cash 4000
  1. PREPARE THE JOURNAL ENTRIES FOR 2021:

Date

Account Name

Debit

Credit

12/31/2021

 Bonds payable 100000
Interest expense 4000
Cash 104000
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