Question

1. Simon Brothers pays $47,000 into a bond sinking fund each year to redeem the future maturity of its bonds. During the first year, the fund earned $3,825. At the time of bond redemption, the fund has a balance of $417,000. Of this, $400,000 was used to redeem the bonds. Journalize the following entries. a. Initial deposit b. The first year’s interest c. The redemption of the bonds 2. On January 1, Auctions Online issued $300,000, 9%, 10-year bonds to lenders at the contract rate. Interest is to be paid semiannually on July 1 and January 1. Journalize the following entries. a. Issued the bonds b. Paid first semiannual interest payment c. Retired the bonds at maturity

Answer 1

Answer:

Answer is provided in explanation portion.

Explanation:

Answer. Part 1

(a) Sinking Fund                                                 47,000

        Cash                                                             47,000

Purchased bonds in cash at  $47000

(b) Sinking Fund                                                       3,825

Sinking Fund Interest Earned                                    3,825

Earned interest on the bond at $3825

(c) Cash                                                           17,000

Bonds payable                                                  400,000

                                                                           417,000

Cash was earned at $17000 and to redeem the bond, $400,000 is payable.

Answer. Part 2  

(a) Cash                                                               300,000

         Bonds Payable                                             300,000

Bonds were issued at $300,000

(b) Bond interest expense                               13,500

          Cash                                                          13,500

Interest on bonds was paid to bond holders at $13500

• For interest (300,000*0.09)/2 for semi-annually is $13500 when divided by 10.

(c) Bonds Payable                                            300,000

            Cash                                                        300,000

Bonds’ maturity payment was done at $300,000

Answer 2

Answers are the following:
1. a. Sinking Fund 47,000
Cash 47,000
b)Sinking Fund 3,825
Sinking Fund Interest Earned 3,825
c)Cash 17,000
Bonds Payable 400,000
Sinking Fund 417,000

2. 
a)Cash 300,000
Bonds Payable 300,000
b)Bond Interest Expense 13,500
Cash 13,500
c)Bonds Payable 300,000
Cash 300,000