10 4 points On 010115 B issued 800000 of 4 5year term bonds

10. (4 points) On 01-01-15, B issued $800,000 of 4%, 5-year term bonds. The bonds pay interest every July 1 and January 1. At the time B issued the bonds, similar bonds paid 4.5%. Upon issuing the bonds, B incurred and paid $7,500 of bond issuance costs. B uses the effective-interest method to amortize any bond discount or premium. B only prepares AJEs every December 31. Prepare the entries B should make on:

a. 01-01-15

b. 07-01-15

c. 12-31-15

d. 01-01-16

Solution

A.

4%Bond A/c        Dr     $800,000

   To Cash/Bank A/c   $800,000

(Being Bond Issue)

B.

Interest Exp. A/c    Dr $32000

To Cash/Bank A/c                  $32000

(Being Interest Paid)

C.

No Entries

D.

Interest Exp. A/c    Dr $32000

To Cash/Bank A/c                  $32000

(Being Interest Paid)