Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. On April 1, 2016, Quirk issued $2,000,000, 9% bonds for $2,151,472 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2026.

Solution:

The following journal entry will be prepared in the books of Quirk company on April 1, 2017 to record the issue of bonds:

DateAccount Titles and Explanation          Debit            Credit

April 1Cash account                                       2,151,472  

       Bonds Payable account                                       2,000,000

       Interest Expense  

($2,000,000 multiply with  9 percent multiply with 0.25)  45,000

       Premium on Bonds Payable account

      ($2,151,472 - $2,000,000 - $45,000)                              106,472

Note: the calculation of 0.25 is as follows: 3 months divided by 12 months is equal to 0.25

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