Exercise 1.

On January 1, 2018, James Bond Corp. issued ₱30,000,000 5-year, 8% bonds at a market (effective) interest rate of
8%, receiving cash of ₱30,000,000. Interest on the bonds is payable semiannually on
June 30 and December 31.

Provide the journal entries for (1) the issuance of the bond, (2) the interest payments on June 30, 2018 and
December 31, 2018, and (3) the payment of the bond at maturity.

ANSWER:

1.1 ISSUED AT PAR

Face amount (P) = 30,000,000
Proceeds = 30,000,000
Interest payment (R) = 8%
T = 5 years
Interest payment dates: 6/30, 12/31
Market rate: 8%

1/1/2018 Dr cash 30M

Cr bonds payable 30M
6/30/2018 Dr interest expense 1.2M
Cr cash 1.2M
12/31/2018 Dr interest expense 1.2M
Cr cash 1.2M

Balance sheet
2018 Bonds payable 30,000,000
Interest payable 0

Income statement
2018 Interest expense 2.4M

2019 - same journal entries except Jan 1 because Jan 1, 2018 is when the bonds was availed

Dec 31, 2022 - bonds will be paid, assumed - end of term should be indicated
12/31/22 Interest payable 1.2M
Cash 1.2M
Bonds payable 30M
Cash 30M

1.2 What if the payment dates are July 1 and January 1?

Face amount (P) = 30,000,000
Proceeds = 30,000,000
Interest payment (R) = 8%
T = 5 years
Interest payment dates: 1/1, 7/1
Market rate: 8%

YEAR 2018
1/1/2018 cash 30M
bonds payable 30M
7/1/2018 interest expense 1.2M
cash 1.2M
12/31/18 interest expense 1.2M
Interest payable 1.2M

Balance sheet
2018 Bonds payable 30,000,000
Interest payable 1,200,000

Income statement - period ended

2018 Interest expense 2.4M
How much is current liability? 1.2M
How much is long term liability? 30,000,000

YEAR 2019 up to year 2021

1/1/2019 Interest payable 1.2M
Cash 1.2M
7/1/2018 interest expense 1.2M
cash 1.2M
12/31/19 Interest expense 1.2M
Interest payable 1.2M

Balance sheet - 2019 to 2022

2019 Bonds payable 30,000,000
Interest payable 1,200,000

Income statement - period ended - 2019 to 2022

2019 Interest expense 2.4M

How much is current liability in 2021? 1.2M

How much is current liability in 2022? 31.2M

YEAR 2023
1/1/2023 Interest payable 1.2M
Cash 1.2M
Bonds payable 30M
 cash

1.3 Issuance is May 1, 2018

Face amount (P) = 30,000,000
Proceeds = 30,000,000
Interest payment (R) = 8%
T = 5 years
Interest payment dates: 4/30, 10/31
Market rate: 8%

YEAR 2018
5/1/18 Cash 30M
Bonds payable 30M
10/31/18 Interest expense 1.2M
Cash 1.2M
12/31/18 Interest expense 400K*
Interest payable 400K*
*30M x 8% x 2/12 = 400,000

Balance sheet
2018 Bonds payable 30,000,000
Interest payable 400,000

Income statement
2018 Interest expense 1.6M

YEAR 2019
4/30/19 interest expense 800K*
Interest payable 800k*
Interest payable 1.2M
Cash 1.2M
*30M x 8% x 4/12 = 800,000

OR
4/30/19 interest expense 800K*
Interest payable 400k**
Cash 1.2M
**from previous year
*30M x 8% x 4/12 = 800,000

10/31/19 Interest expense 1.2M

Cash 1.2M
12/31/19 Interest expense 400k
Interest payable 400k

Balance sheet 2019

2019 Bonds payable 30,000,000
Interest payable 400,000

Income statement 2019

2019 Interest expense 2.4M

In 2022, how much is the current liabilities? 30,800,000

YEAR 2023
4/30/23 interest expense 800K*
Interest payable 800k*
Interest payable 1.2M
Cash 1.2M
Bonds payable 30M
Cash 30M

Balance sheet 2023

2023 Bonds payable -
Interest payable -

Income statement 2023

2023 Interest expense 800K