Question

Reporting Financial Statement Effects of Bond Transactions Lundholm, Inc., which reports financial statements each December 31, is authorized to issue $500,000 of 9%, 15-year bonds dated May 1, 2018, with interest payments on October 31 and April 30. Assume the bonds are issued at par on May 1, 2018. a. Prepare journal entries to record the bond issuance, payment of the first semiannual period’s interest, and retirement of $300,000 of the bonds at 101 on November 1, 2019.

Answer 1

Lundholm, Inc

Journal Entries

Date Account Titles Debit Credit

May 1, 18 Cash $500,000

Bonds payable $500,000

(To record the bond issuance)

31 Oct, 18 Interest Expenses $22,500

(500000*9%*6/12)

Cash $22,500

(To record payment of the first semiannual period’s interest)

Nov 1, 19 Bonds payable $300,000

Loss on Bonds $3,000

Cash $303,000

(To record retirement the bonds at 101 on November 1, 2019)