Question

During two consecutive years, Schwartz Freight Line Corporation completed the following transactions relating to its $ 15,000,000 issue of 25-year, 7 percent bonds, dated May 1 of the first year. Interest is payable on May 1 and November 1. The corporation’s fiscal year extends from January 1 through December 31.
Year 1
May 1 Sold the bond issue at 97 3/4.
Nov. 1 Paid semiannual interest on the bonds.
Dec. 31 Deposited $ 216,560 in a bond sinking fund.
31 Made an adjusting entry to record amortization of bond discount.
31 Made an adjusting entry to record accrued interest payable.
31 Closed the Interest Expense account.
Year 2
Jan. 1 Reversed the adjustment for accrued interest payable.
9 Bought various securities with sinking fund cash; cost, $ 216,560.
May 1 Paid semiannual interest on the bonds.
Nov. 1 Paid semiannual interest on the bonds.
Dec. 31 Recorded the receipt of $ 16,245 of income derived from sinking fund investments, depositing the cash in the sinking fund.
31 Deposited $ 322,500 in the bond sinking fund.
31 Made an adjusting entry to record amortization of bond discount.
31 Made an adjusting entry to record accrued interest payable.
31 Closed the Sinking Fund Income account.
31 Closed the Interest Expense account.

Required
1. Record the transactions in general journal form using pages 217 and 218 of the general journal.
2. Post entries to the Discount on Bonds Payable account, No. 242, and the Interest Expense account, No. 581. Label the adjusting, closing, and reversing entries.



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  • CreatedOctober 21, 2014
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