How to Record Bond Purchases and Interest Payments by Salt Foods
How does Salt Foods record the purchase of the bonds from Pretzelmania, Incorporated?
What entries are necessary for recording the interest payments received by Salt Foods semiannually?
Recording Bond Purchases:
On January 1, Salt Foods would record the purchase of the bonds from Pretzelmania, Incorporated by:
Debit: Bonds Payable ($60,000)
Credit: Cash ($55,537)
Credit: Premium on Bonds Payable ($4,463)
Interest Payments Received:
On June 30 and December 31, Salt Foods would record the receipt of interest on the bonds by:
Debit: Interest Expense ($1,500)
Credit: Cash ($1,000)
Credit: Discount on Bonds Payable ($500)
When Salt Foods purchases the bonds on January 1 from Pretzelmania, Incorporated, they need to record the transaction correctly in their books. The journal entry includes debiting Bonds Payable for the face value of the bonds ($60,000), crediting Cash for the amount paid ($55,537), and crediting Premium on Bonds Payable for the difference between the face value and the purchase price ($4,463).
For the interest payments received semiannually on June 30 and December 31, Salt Foods needs to record these transactions as well. The journal entry for each payment involves debiting Interest Expense for the interest amount ($1,500), crediting Cash for the received amount ($1,000), and crediting Discount on Bonds Payable for the amortization of the bond discount ($500).
These entries ensure proper accounting treatment for the bonds and related expenses. The recording of bond purchases and interest payments is crucial for accurate financial reporting by Salt Foods.