Question

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

2. PREPARE THE JOURNAL ENTRIES FOR 2020:

Date	Account Name	Debit	Credit
12/31/2020

3. PREPARE THE JOURNAL ENTRIES FOR 2021:

Date	Account Name	Debit	Credit
12/31/2021

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

2. PREPARE THE JOURNAL ENTRIES FOR 2020:

Date	Account Name	Debit	Credit
12/31/2020	Interest expense	4000
	cash		4000

3. PREPARE THE JOURNAL ENTRIES FOR 2021:

Date	Account Name	Debit	Credit
12/31/2021	Bonds payable	100000
	Interest expense	4000
	Cash		104000