On September 30 2017, Quest work Construction Company issued USD 120,000 face value of 12 per cent, 10-year bonds dated Ist January 2017, at USD 100,000 plus accrued interest. Interest is paid semi-annually on June 30th and December 31. Quest works accounting year ends on December 31. The issue cost for the bond was USD 10,000 and the first interest was paid on 30 June 2018.(show all the journal entries for 2017,2018 and 2026 in Quest work account). Ignore the amortisation of interest.
To determine the journal entries for Quest Work Construction Company, we need to understand the different transactions related to the bond issuance and interest payments. Below are the journal entries for the given years:
2017:
1. Bond Issuance:
Debit: Cash - $100,000
Debit: Bond Issue Cost - $10,000
Credit: Bonds Payable - $120,000
2018:
2. June 30 - Semi-annual interest payment:
Debit: Bond Interest Expense - $6,000 ([$120,000 x 12%] / 2)
Credit: Cash - $6,000
3. December 31 - Accrual of interest expense:
Debit: Bond Interest Expense - $6,000
Credit: Bond Interest Payable - $6,000
2019 to 2025:
4. June 30 and December 31 entries:
Debit: Bond Interest Expense - $6,000
Credit: Cash - $6,000
2026:
5. June 30 - Semi-annual interest payment and redemption:
Debit: Bond Interest Expense - $6,000
Debit: Bonds Payable - $120,000
Credit: Cash - $126,000 ([$120,000 x 12%] / 2 + $120,000)
Note: This answer assumes the bond is redeemable at maturity, and no amortization of interest is allowed. The interest expense is recognized in each period based on the stated annual interest rate and semi-annual payment periods. Also, it is assumed that no taxes are being considered in this example.