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Carla Vista Co. issued $480,000 of 9%, 15-year bonds on January 1, 2017, at face value. Interest...

Question:

Carla Vista Co. issued $480,000 of 9%, 15-year bonds on January 1, 2017, at face value. Interest is payable annually on January 1.

1. Prepare the journal entry to record the issuance of the bonds.

2. Prepare the journal entry to record the accrual of interest on December 31, 2017.

3. Prepare the journal entry to record the payment of interest on January1, 2018.

4. Prepare the journal entry to record the redemption of the bonds at maturity, assuming the interest for the last interest period has been paid and recorded.

Long-Term Debts

Long-term debts, such as bonds and other types of outstanding debts which generally have a maturity date of one year or longer. Hence, it is classified in the balance sheet as a non-current liability.

Answer and Explanation:

1. Prepare the journal entry to record the issuance of the bonds.

Accounts Debit Credit
Cash 480,000
Bonds Payable 480,000

2. Prepare the journal entry to record the accrual of interest on December 31, 2017.

Accounts Debit Credit
Interest Expense 43,200
Accrued Interest Payable 43,200

3. Prepare the journal entry to record the payment of interest on January1, 2018.

Accounts Debit Credit
Accrued Interest Payable 43,200
Cash 43,200

4. Prepare the journal entry to record the redemption of the bonds at maturity, assuming the interest for the last interest period has been paid and recorded.

Accounts Debit Credit
Bonds Payable 480,000
Cash 480,000

Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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