Question

On january 1, 2015, providence, inc., issues $1,000,000 of 10 percent, 5-year bonds at par value. complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

Answer 1

On January 1, 2015, the date of issuance, the entry is:

2015

Jan 1

Cash 1,000,000

Bonds Payable 1,000,000

On each January 1 for 5 years, beginning 2015 January 1 (ending 2020 January 1), the entry would be (Remember, calculate interest as Principal x Interest x Time):

Jan 1

Bond Interest Expense ($1,000,000 x 10% x 1) 100,000

Cash 100,000

On January 1 (5 years later), the maturity date, the entry would include the last interest payment and the amount of the bond:

Jan 1

Bond Interest Expense ($1,000,000 x 10% x 1) 100,000

Bonds Payable 1,000,000

Cash 1,100,000