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Gridley Company issued $800, 000, 11%, 10-year bonds on December 31, 2016, for $730,000. Interest...

Question:

Gridley Company issued $800, 000, 11%, 10-year bonds on December 31, 2016, for $730,000. Interest is payable annually on December 31. Gridley Company uses the straight-line method to amortize bond premium or discount.

Prepare the journal entries to record the following.

a. The issuance of the bonds.

b. The payment of interest and the discount amortization on December 31, 2017.

c. The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Bonds Payable

It is a long-term debt issued by corporations for purposes such as business expansion, warehouse or office building construction, working capital requirements and etc. It is a long-term debt because the maturity of the bonds goes beyond one year.

Answer and Explanation:

a. The issuance of the bonds.

Accounts Debit Credit
Cash 730,000
Discount on Bonds Payable 70,000
Bonds Payable 800,000
To record for issuance of bonds at a discount

b. The payment of interest and the discount amortization on December 31, 2017.

Accounts Debit Credit
Interest Expense 88,000
Cash 81,000
Discount on Bonds Payable 7,000
To record for the payment of interest and amortization of discount

c. The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.

Accounts Debit Credit
Bonds Payable 800,000
Cash 800,000
To record for the redemption of the bonds at maturity

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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