(Comprehensive Bond Problem)

Prepare the journal entries related to the sale of bonds and subsequent payments on those bonds. Also prepare the year-end accrual of interest expense.

1. Sanford Co. sells

$500,000

of

10%

bonds on March 1, 2014. The

bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2017.

The bonds yield

12%

Give the entries through December 31, 2015.

A) Prepare the Bond Discount Amortization Table

Schedule of Bond Discount Amortization

Effective Interest Method

10% Bonds Sold to Yield 12%

Amortization

Carrying

Cash

Interest

of Bond

Value

Date

Paid

Interest Expense

Discount

of Bonds

Mar 1, 14

Amount

Sep 1, 14

Formula

Formula

Formula

Formula

Mar 1, 15

Formula

Formula

Formula

Formula

Sep 1, 15

Formula

Formula

Formula

Formula

Mar 1, 16

Formula

Formula

Formula

Formula

Sep 1, 16

Formula

Formula

Formula

Formula

Mar 1, 17

Formula

Formula

Formula

Formula

Sep 1, 17

Formula

Formula

Formula

Formula

B) Prepare journal entry to record issuance of the bond on March 1, 2014

Mar 1, 14

Account Title

Amount

Account Title

Amount

Account Title

Amount

C) Prepare the journal entry to record the first payment of bond interest on September 1.

Sep 1, 14

Account Title

Amount

Account Title

Amount

Account Title

Amount

D) Prepare the journal entry to reord the accrual of interest at December 31. Assume that no prior accruals have been made.

Dec 31, 14

Account Title

Amount

Account Title

Amount

Account Title

Amount

Note: Amortization table is semi-annual, interest rate is stated as annual value.

E) Prepare the journal entry for the March 1, payment of interest. Assume that no additional accruals

have been made since December and no reversing entry was made at December.

Mar 1, 15

Account Title

Amount

Account Title

Amount

Account Title

Amount

Account Title

Amount

F) Prepare the journal entry to record the payment of bond interest on September 1.

Sep 1, 15

Account Title

Amount

Account Title

Amount

Account Title

Amount

G) Prepare the journal entry to record the accrual of interest at December 31.

Dec 31, 15

Account Title

Amount

Account Title

Amount

Account Title

Amount

See also tabs on payroll and goodwill