Question

Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. On April 1, 2016, Quirk issued $2,000,000, 9% bonds for $2,151,472 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2026.

Answer 1

The following journal entry will be prepared in the books of Quirk company on April 1, 2017 to record the issue of bonds:

Date Account Titles and Explanation Debit Credit

April 1 Cash account 2,151,472

Bonds Payable account 2,000,000

Interest Expense

($2,000,000 multiply with 9 percent multiply with 0.25) 45,000

Premium on Bonds Payable account

($2,151,472 - $2,000,000 - $45,000) 106,472

Note: the calculation of 0.25 is as follows: 3 months divided by 12 months is equal to 0.25