Answer:
Gridley Company
Journal Entries:
a. The issuance of the bonds.
December 31, 2019:
Debit Cash Account $730,000
Debit Bonds Discount $70,000
Credit Bonds Payable $800,000
To record the issuance of 10-year bonds at 11%.
b. The payment of interest and the discount amortization on December 31, 2020.
Debit Interest Expense $88,000
Credit Cash Account $88,000
To record the payment of interest.
Debit Amortization Expense $7,000
Credit Bonds Discount $7,000
To record amortization of discount.
c. The redemption of the bonds at maturity, assuming interest for the last interest period has been paid and recorded.
Debit Bonds Payable $800,000
Credit Cash Account $800,000
To record the redemption of the bonds at maturity.
Explanation:
a) Data and Calculations:
Bonds issued (face value) = $800,000
Cash Receipt (Discounted value) = $730,000
Discount value = $70,000
Bonds' duration = 10 years
Amortization of Discount = $7,000 ($70,000/10) under the straight-line method.
Interest rate = 11% annually ($88,000)
