A & B Antiques issued the following bonds:
Date of issue and sale: April 1, 20-1
Principal amount: $430,000
Sale price of bonds: 100
Denomination of bonds: $1,000
Life of bonds: 10 years
Stated rate: 8%, payable semiannually on September 30 and March 31
Prepare journal entries for:
A & B Antiques issued the following bonds:
Date of issue and sale: April 1, 20-1
Principal amount: $430,000
Sale price of bonds: 100
Denomination of bonds: $1,000
Life of bonds: 10 years
Stated rate: 8%, payable semiannually on September 30 and March 31
Prepare journal entries for:
To prepare journal entries for the bonds issued by A & B Antiques, we need to understand the different components involved in the bond issuance.
1. Bond issuance at par value:
When bonds are issued at par value, it means the sale price of the bonds is equal to the principal amount. In this case, the sale price of the bonds is given as 100, which means it is being sold at par value.
The journal entry for the bond issuance at par value would be:
Dr. Cash (principal amount) $430,000
Cr. Bonds Payable $430,000
2. Interest expense:
Since the stated rate of interest is 8%, payable semiannually on September 30 and March 31, we need to record the interest expense and interest payable.
On September 30, interest expense is calculated as follows:
Principal amount * Stated rate * Time period = $430,000 * 8% * 6/12 = $17,200
The journal entry for the interest expense on September 30 would be:
Dr. Interest Expense $17,200
Cr. Interest Payable $17,200
On March 31, the interest expense would be the same as the September 30 interest expense of $17,200.
The journal entry for the interest expense on March 31 would be the same as the September 30 entry:
Dr. Interest Expense $17,200
Cr. Interest Payable $17,200
Note: The interest expense is debited because it represents an expense for the company. The interest payable is credited because it is a liability for the company until it is paid.
3. Amortization of premium (if applicable):
If the bonds were issued at a premium, which means the sale price was higher than the principal amount, you would also need to record the amortization of the premium over the life of the bonds. However, in this case, the bonds are issued at par value, so there is no premium to amortize.
Please Note: It is always a good idea to consult with an accountant or financial professional for accurate journal entries specific to your company and jurisdiction.