The Colson Company issued $407,000 of 9% bonds on January 1, 2014. The bonds are due January 1, 2020, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Dr cash    $407,000

Cr bonds payable       $407,000

July 1

Dr interest expense   $ 18,315.00  

Cr cash                                              $ 18,315.00  

December 31

Dr interest expense   $ 18,315.00  

Cr interest payable                                          $ 18,315.00  

Explanation:

The bond was issued at face value of $407,000 which means that cash of $407,000 was received which is to be debited to cash account and bonds payable account credited for the same amount.

On July1 ,interest coupon of  $ 18,315.00   ($407,000*8%*6/12) was paid which means that interest expense is debited with $ 18,315.00   while cash is credited.

On 31 December ,interest coupon of  $ 18,315.00   ($407,000*8%*6/12) was due  which means that interest expense is debited with $ 18,315.00   while interest payable is credited.

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