Question

Devers Corporation issued $400,000 of 6% bonds on May 1, 2017. The bonds were dated January 1, 2017, and mature January 1, 2020, with interest payable July 1 and January 1. The bonds were issued at face value plus accrued interest. Prepare Devers’s journal entries for (a) the May 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.

Short answer

The total for both the debit and credit sides is $432,000.

Step-by-step solution

Meaning of Face Value:

The amount of money the bond's issuer pays per bond to the bondholder at the maturity date is known as face value.It is generally denominated in the denomination of a hundred.

Journal Entries

Journal Entries
Date	No.	Accounts and Explanation	Debit	Credit
May 1, 2017	(a)	Cash	$408,000
		Bonds Payable		$400,000
		Interest Expenses		$8,000
July 1, 2017	(b)	Interest expenses	$12,000
		Cash		$12,000
December 31, 2017	(c)	Interest expenses	$12,000
		Interest Payable		$12,000

Working:

Interest expenses on May 1, 2017 =($400,000 x 6% x 4/12) = $8,000

Interest expenses paid cash on July 1, 2017 = ($400,000 x 6% x 1/12)= $12,000

Interest payable on December 31, 2017 = ($400,000 x 6% x 1/12) = $12,000