Q35PGA_d - Horngren'S Financial And Managerial Accounting

Question

Analyzing and journalizing bond transactions

On January 1, 2018, Educators Credit Union (ECU) issued 8%, 20-year bonds payable with face value of $1,000,000. These bonds pay interest on June 30 and December 31. The issue price of the bonds is 109.Journalize the following bond transactions:

a. Issuance of the bonds on January 1, 2018.

b. Payment of interest and amortization on June 30, 2018.

c. Payment of interest and amortization on December 31, 2018.

d. Retirement of the bond at maturity on December 31, 2037, assuming the last interest payment has already been recorded.

Step-by-Step Solution

Answer

The 8% bonds payable account is debited with $1,000,000, and the cash account is credited with $1,000,000.

Step 1: Definition of bonds payable

A bond payable is the long-term liability which shows the amount payable by the company to the other party.

Step 2: Entry for the issue of bonds payable

Date	Particulars	Debit	Credit
December 31, 2037	8% Bonds Payable	$1,000,000
	Cash		$1,000,000
	(Being entry for the retirement of bonds)