Final answer:
The student’s question involves preparing journal entries for bond issuance, interest accrual, and payments, as well as entries for issuance at a discount and premium. The main journal entries include recording the initial issuance at face value, the yearly interest accrual and payment, and the adjusted cash value for issuance at a discount or premium with corresponding discount or premium on bonds payable.
Step-by-step explanation:
The student's question involves journal entries for bond transactions in accounting. Here are the requested entries:
- a. Issuance of the bonds:
Dr Cash 300,000
Cr Bonds Payable 300,000 - b. Accrual of interest on 12/31:
Dr Interest Expense 24,000
Cr Interest Payable 24,000 - c. Payment of interest on 1/1:
Dr Interest Payable 24,000
Cr Cash 24,000 - d. Entry for bonds issued at 94:
Dr Cash 282,000
Dr Discount on Bonds Payable 18,000
Cr Bonds Payable 300,000 - e. Entry for bonds issued at 106:
Dr Cash 318,000
Cr Premium on Bonds Payable 18,000
Cr Bonds Payable 300,000
Note that the accural of interest is based on a one-year period (8% of 300,000). When bonds are issued at a discount (at 94), the company receives less cash than the face value, and the difference is recorded as a discount on bonds payable. Conversely, when bonds are issued at a premium (at 106), the company receives more than the face value, and the difference is recorded as a premium on bonds payable.