Cupola Fan Corporation issued 12%, $550,000, 10-year bonds for $525,000 on June

Question

Cupola Fan Corporation issued 12%, $550,000, 10-year bonds for $525,000 on June 30, 2018, Debt issue costs were $3,000. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2019), the corporation exercised its call privilege and retired the bonds for $530,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. Required . to 4. Prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2018 &2019, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the issuance of the bonds. Note: Enter debits before credits. Date General Journal Debit Credit June 30, 2018 Record entry Clear entry View general journal

Explanation / Answer

Par Value of the bonds = $                       5,50,000 Issue price of the bond= $                       5,25,000 Discount to be amortized = $                           25,000 Coupon amount @ 12% = $                           66,000 Semi Annual Coupon = $ 66,000 / 2 = $                           33,000 Total life of the Bonds = 10 Years No. of Period of 6 Months = 10 Years X 2 = 20 Periods Interest amortized = $ 25,000 / 20 Periods = $ 1,250 per Six Months Debt Issue Cost Amortization = $ 3,000 / 20 = $ 150 Per Periods Answer =1) Working Notes: for calculation of the interest expenses Interest Expenses of June 30 2018 =   Coupon Amount = $                           33,000 Add: Amortization value $                             1,250 Add: Debt Issue Cost $                                 150 Total interest expesnes $                           34,400 Note: This Amount will same for all period of interest because of Straight line method of utilization Record the issuance of Bond as on June 30, 2018 Journal Entries Date Account Title and explanation Debit Credit Jun, 30 2018 Cash $                       5,25,000 Discount on issuance of Bonds $                           25,000       To 12% Bonds $             5,50,000 (to record the issuance of the bonds) Record the payment of interest expenses Journal Entries Date Account Title and explanation Debit Credit Dec, 31 2018 Interest Expenses $                           34,400          To Discount on issuance of bonds $                   1,250           To Debt Issue Cost Cost $                      150           To Cash $                33,000 (To Record the interest expenses ) Record the payment of interest expenses Journal Entries Date Account Title and explanation Debit Credit June 30, 2019 Interest Expenses $                           34,400          To Discount on issuance of bonds $                   1,250           To Debt Issue Cost Cost $                      150           To Cash $                33,000 (To Record the interest expenses ) Record the Call of the Bonds Journal Entries Date Account Title and explanation Debit Credit 12% Bonds $                       5,50,000 July 01, 2019 Loss on Call of Bonds $                             5,200     To Cash $             5,30,000      To Discount on issuance of bonds $                22,500      To Debt Issue Cost Cost $                   2,700 (To Record the Call for the Bonds )

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