Question

On January 1, 2018, Jones Jeans Co. buys a 8 year $600,000 face value bond from Rawlings Inc. The bonds pay semi-annual interest on January 1 and July 1. The bonds are classified as held to maturity.

Assume that Rawlings Inc. had issued $60 million, in total, of the bonds that were purchased by Jones Jeans Co.

Prepare the journal entries

a) at issuance

b) July 1 interest payments for Rawling Inc.

Answer 1

Solution a:

It is assumed that bonds are issued at par value and coupon rate of interest is 10% as interest is not specified in question.

Journal Entries - Rawling Inc.
Date	Particulars	Debit	Credit
1-Jan-18	Cash Dr	$60,000,000.00
	To Bond Payable		$60,000,000.00
	(Being issued of bond recorded)

Solution b:

Journal Entries - Rawling Inc.
Date	Particulars	Debit	Credit
1-Jul-18	Interest Expense Dr	$3,000,000.00
	To Cash		$3,000,000.00
	(Being interest paid on bond and discount amoritzed)
	(To record semiannual payment of interest)