EXERCISE 10-6

Purpose: (L.O. 5) This exercise will illustrate the journal entries required to record the issuance of bonds at face value and the entries to account for the related interest expense.

The Hale Corporation issued bonds dated April 1, 2014. These bonds are 5-year term bonds with a face value of $1,000 each and a stated interest rate of 7%. Interest is payable semiannually on October 1 and April 1.

Instructions

  1. Prepare the journal entry to record the sale of 5,000 of these bonds on April 1, 2014 at 100.
  2. Prepare the journal entry to record the first interest payment on October 1, 2014, assuming no previous accrual of interest.
  3. Prepare the adjusting entry on December 31, 2014, to record interest expense, assuming a calendar year reporting period.

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