The Quenzer Company issued a $40,000,000, 10-year bond on January 1st of last ye

Question

The Quenzer Company issued a $40,000,000, 10-year bond on January 1st of last year. The bond was sold at l 14. The stated rate is 12% (compounded semi-annually) while the market rate was 8%. On March 1st of this year, the company redeemed $700,000 worth of bonds at 113. REQUIRED: Journalize the entries to 1) issue the bonds on January 1st, 2) record the first bond interest payment and bond amortization on July 1st 3) record the second bond interest payment and bond amortization on December 31st, and 4) redeem the bonds on March 1st.

Explanation / Answer

Amort Chart Date Cash Interest Premium Unamortized Carrying Interest Expense Amortized Premium Value 1-Jan 5600000 45600000 1-Jul 2400000 1824000 576000 5024000 45024000 1-Jan 2400000 1800960 599040 4424960 44424960 1-Jul 2400000 1776998 623002 3801958 43801958 Journal Entries: Date Accounts title and explanation Debit $ Credit $ 1-Jan Cash Account Dr. 45,600,000     Bonds payable Account 40,000,000     Premium on Bonds payable 5,600,000 1-Jul Interest expense Account Dr. 1824000 Premium on Bonds payable Dr. 576000      Cash account 2,400,000 31-Dec Interest expense Account Dr. 1800960 Premium on Bonds payable Dr. 599040      Interest payable 2400000 1-Jan Interest payable Dr. 2400000      Cash account 2400000 1-Mar Interest expense Account Dr. (2400000/400*7) 42000 Premium on Bonds payable Dr. (623002/400*7) 10903      Cash account 52903 1-Mar Bonds payable Dr. 700000 Premium on bonds payable (4424960/400*7- 109025) 66534 Loss on retirement of bonds 24466       Cash account (7000*113) 791000

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