Question

On January 1, 2019, Rufus Company issued $4,000,000 par value, 4%, bonds that mature on December 31, 2029. The bonds were issued at 102 to yield a return of 3% to investors. Interest on the bonds is paid annually on December 31 each year.

1. Please prepare the entry to record the issuance of the bonds on January 1, 2019.
2. Prepare the entry to record the payment of interest on the bonds on December 31, 2019.

(SHOW ALL WORK)

Answer 1

Solution:

Date	Account Titles	Debit	Credit
01-Jan-19	Cash (4,000,000*102%)	$40,80,000
	Premum on Bond payable		$80,000
	Bonds payable		$40,00,000
	(To record Bond issuance)

Date	Account Titles	Debit	Credit
31-Dec-19	Interest Expense (4,080,000*3%)	$1,22,400
	Premium on Bond Payable	$37,600
	Cash ($4,000,000*4%)		$1,60,000
	(To record payment of Interest on Dec 31, 2019)