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Damon Corporation issued $400,000 of 6% bonds on May 1, 2020 using straight-line interest. The bonds were dated January 1, 2020, and mature January 1, 2023, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest.

Prepare Damon's journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

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Answer:

May 1

Dr Cash408,000

Cr Bonds Payable 400,000

Cr Interest Expense 8,000

July 1

Dr Interest Expense 12,000

Cr Cash 12,000

Dec 31

Dr Interest Expense 12,000

Cr Interest Payable12,000

Explanation:

May 1,

Dr Cash408,000

Cr Bonds Payable 400,000

Cr Interest Expense 8,000(Accrued Interest = 400,000 x 6% x 4/12)

July 1

Dr Interest Expense 12,000

Cr Cash 12,000(Bond interest expense = 400,000 x 6% x 6/12)

Dec 31

Dr Interest Expense 12,000

Cr Interest Payable12,000

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