Question

Pina Colada Corp. issued 2,100 8%, 9-year, $1,000 bonds dated January 1, 2017, at face value. Interest is paid each January 1.

(a) Prepare the journal entry to record the sale of these bonds on January 1, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(b) Prepare the adjusting journal entry on December 31, 2017, to record interest expense. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(c) Prepare the journal entry on January 1, 2018, to record interest paid. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

The journal entries for the sale of the bonds, the adjusting journal entry for interest expense, and the journal entry for interest paid.

Step-by-step explanation:

(a) To record the sale of the bonds on January 1, 2017:

Debit: Cash $2,100,000 (2,100 bonds x $1,000 each)

Credit: Bonds Payable $2,100,000

(b) To record interest expense on December 31, 2017:

Debit: Interest Expense $168,000 (2,100 bonds x $1,000 each x 8%)

Credit: Interest Payable $168,000

(c) To record interest paid on January 1, 2018:

Debit: Interest Payable $168,000

Credit: Cash $168,000

Answer 2

The Journal entries are as follows:

(a) On January 1, 2017

Cash A/c Dr. $2,100,000

To bonds payable $2,100,000

(being bond issued at face value)

(b) On December 31, 2017

Bond interest expense A/c Dr. $168,000

To Interest expense $168,000

(interest outstanding)

Bond interest expense = ($2,100,000 × 8%)

= $168,000

(c) On January 1, 2018

Interest payable A/c Dr. $168,000

To cash $168,000

(Interest paid)