Question

Kiwi Corporation issued at par $350,000, 9% bonds on January 1, 2020. Interest is paid annually on December 31. The principal and the final interest payment are due on December 31, 2021.

Required:

1. Prepare the entry to recognize the issuance of the bonds.

2020 Jan. 1 Cash
Bonds Payable
Cash
Discount on Bonds Payable
Interest Expense
Premium on Bonds Payable
Bonds Payable
Bonds Payable
Cash
Discount on Bonds Payable
Interest Expense
Premium on Bonds Payable
Record issuance of bonds at par.
1. When bonds are issued, any premium or discount is recorded in a separate valuation account.

2. Prepare the journal entry for December 31, 2020.

2020 Dec. 31 Interest Expense
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Cash
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Record interest expense
2. When calculating interest, consider the principal, the annual interest rate and the time period.

3. Prepare the journal entry to record repayment of the principal on December 31, 2021.

2021 Dec. 31 Interest Payable
Bonds Payable
Cash
Discount on Bonds Payable
Interest Payable
Premium on Bonds Payable
Cash
Cash
Discount on Bonds Payable
Interest Expense
Interest Payable
Premium on Bonds Payable
Record repayment of bond principal
3. Repayment of the principal at maturity retires the obligation.

Answer 1

KIWI CORPORATION

Date Description DR CR

2020

1. Jan 1 Cash $350,000

Bond Payable $350,000

Being the amount received on issuance on Bond

2. Dec 31 Interest expenses 31,500

Cash 31,500

Being the interest paid on the bond

2021

3. Dec 31 Interest expenses 31,500

Cash 31,500

Being the interest paid on the bond

4. Dec31 Bond payable 350,000

Cash 350,000

Being the amount paid on the redemption of bond at par

Step-by-step explanation: