# A company issued $15,000,000 of 8% debentures on May 1, 2017 and received cash totaling... ## Question: A company issued$15,000,000 of 8% debentures on May 1, 2017 and received cash totaling \$13,308,942.

a. The bonds pay interest semiannually on May 1 and November 1.

b. The maturity date on these bonds is November 1, 2025.

c. The firm uses the effective-interest method of amortizing discounts and premiums.

d. The bonds were sold to yield an effective interest rate of 10%. Using the attached T-account template, prepare the following transactions:

5/1/17: Bond issuance

10/31/17: Accrual of interest and amortization of bond discount/premium

11/1/17: Interest payment

4/30/18: Accrual of interest and amortization of bond discount/premium

5/1/18: Interest payment

## Debenture:

Debentures are the document issued to borrow money for the long term from the market. It is a form of legally binding contract that binds company and investor. Company pays interest for the money borrowed from the investor.

## Answer and Explanation:

Journal Entries

 Date Particular Debit Credit May 1, 2017 Cash a/c--------------------------------------Dr 13308942 - - Discount on issue of bond a/c----------------------Dr 1691058 - - To 8% Debenture a/c - 15000000 - (Being debenture issued on discount) - - October 31, 2017 Interest expense a/c------------------------------Dr 705691 - - To Interest Payable a/c - 600000 - To Discount on issue of bond a/c (1691058/16) - 105691 - (Being interest due) - - November 1, 2017 Interest payable a/c----------------------------Dr 600000 - - To Cash a/c - 600000 - (Being Interest paid to debenture holders) - - April 30, 2018 Interest expense a/c--------------------------------Dr 705691 - - To Interest payable a/c - 600000 - To Discount on issue of bond a/c - 105691 - (Being interest due) - - May 1, 2018 Interest payable a/c----------------------------Dr 600000 - - To Cash a/c - 600000 - (Being Interest paid to debenture holders) - -