PROBLEM #4 The Uran Company issued a $30,000,000, 10-year bond on January 1 st o

Question

PROBLEM #4 The Uran Company issued a $30,000,000, 10-year bond on January 1 st of last year. The bond was sold at 109. The stated rate is 7% (compounded semi-annually) while the market rate was 6%. On May 1 st of this year, the company redeemed $2,000,000 worth of bonds at 107. REQUIRED: Journalize the entries to 1) issue the bonds on January 1 st 2) record the first bond interest payment and bond amortization on July 1 st, 3) record the second bond interest payment and bond amortization on December 31 st, and 4) redeem the bonds on May 1 st

Explanation / Answer

Journal entry :

Date account & explanation debit credit Jan 1 Cash 32700000 Bonds payable 30000000 Premium on bonds payable 2700000 (To record bond issue) July 1 Interest expense 915000 Premium on bonds payable (2700000/20) 135000 Cash (30000000*7%*6/12) 1050000 (To record first interest) Dec 31 Interest expense 915000 Premium on bonds payable 135000 Cash 1050000 (To record bond interest) May 1 Bonds payable 2000000 Premium on bonds payable 162000 Gain on redemption of bonds 22000 Cash 2140000 (To record bond redeem)

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