12 3 points On 073115 Q issued 15000000 of its 3 5year bonds

12. (3 points) On 07-31-15, Q issued $15,000,000 of its 3%, 5-year bonds dated 04-01-15. The bonds pay interest every April 1 and October 1. At the time the bonds were issued, similar bonds paid 3%. Q did not incur any bond issuance costs. Q uses the effective-interest method to amortize any bond discount or premium and prepares AJEs only as of every 06-30. Prepare the entries Q should make on:

a. 07-31-15 (assume Q uses an interest expense account)

b. 10-01-15

c. 04-01-16

d. 06-30-16

e. 10-01-16

Solution

Date/S.N. Account title & Explanation Debit Credit Amount in $ Amount in $ 2015 Apr-01 Cash 15000000 Bonds Payable 15000000 To record the entry for issuance of bonds at par Jun-30 Interest Expense 112500 Interest expense payable 112500 To record the entry for provision of Interest expnese payable Jul-01 Interest expense payable 112500 Interest Expense 112500 To record the reversal of provisional entry Oct-01 Interest Expense 225000 Cash 225000 To record the Payment of Interest on Bonds 2016 Apr-01 Interest Expense 225000 Cash 225000 To record the Payment of Interest on Bonds Jun-30 Interest Expense 112500 Interest expense payable 112500 To record the entry for provision of Interest expnese payable Jul-01 Interest expense payable 112500 Interest Expense 112500 To record the reversal of provisional entry Oct-01 Interest Expense 225000 Cash 225000 To record the Payment of Interest on Bonds