Answered

Grocery Corporation received $300,328 for 11 percent bonds issued on January 1, 2018, at a market interest rate of 8 percent. The bonds had a total face value of $250,000, stated that interest would be paid each December 31, and stated that they mature in 10 years. Assume Grocery Corporation accounts for the bond using the shortcut approach.

Required:
Prepare the required journal entries to record the bond issuance and the first interest payment on December 31.

Answer :

Answer and Explanation:

The journal entry is shown below:

Cash Dr $300328

    To Bonds Payable $250000

     To Premium on Bonds payable $50328

(Being bond issued at a premium is recorded)

Interest Expense Dr $24026 ($300,328 × 8%)  

Premium on bonds payable Dr $3474  

            To Cash $27500 ($250,000 ×11%)

(Being interest expense recorded)

These two entries should be recorded for the given situation

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