Question

mathers company issued $300,000, 8%, 15-year bonds on december 31, 2021, for $288,000. interest is payable annually on december 31. mathers uses the straight-line method to amortize bond premium or discount. instructions prepare the journal entries to record the following events. a. the issuance of the bonds. b. the payment of interest and the discount amortization on december 31, 2022. c. the redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Answer 1

The journal entries for bond transactions include recording the issuance at a discount, the annual interest payment with discount amortization using the straight-line method, and the redemption at maturity. The initial issuance entry includes a debit to Cash and Discount on Bonds Payable, with a credit to Bonds Payable. Subsequent entries adjust for interest and amortization and ultimately the redemption at face value.

Step-by-step explanation:

Journal Entries for Bond Transactions

To record the journal entries for the issuance of bonds, payment of interest alongside the discount amortization, and redemption of bonds at maturity, one would have to apply the principles of accounting for bonds. The particular scenario given involves bond issuance at a discount, periodic interest payment, and straight-line amortization of the bond discount.

Journal Entry for Bond Issuance:
Debit Cash $288,000
Debit Discount on Bonds Payable $12,000
Credit Bonds Payable $300,000

Journal Entry for Interest Payment and Discount Amortization:
Debit Interest Expense $24,000 ($12,000 annual discount amortization + $24,000 interest on bonds)
Credit Discount on Bonds Payable $12,000
Credit Cash $24,000

Journal Entry for Redemption of Bonds at Maturity:
Debit Bonds Payable $300,000
Credit Cash $300,000