Entries for Issuing and Calling Bonds; Gain Emil Corp. produces and sells wind-e

Question

Entries for Issuing and Calling Bonds; Gain

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $1,663,000 of 25-year, 10% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions:

Issued the bonds for cash at their face amount.

Paid the interest on the bonds.

Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.) For a compound transaction, if an amount box does not require an entry, leave it blank.

20Y1 May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. 20Y5 Nov. 1 Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Explanation / Answer

Solution:

Journal Entries - Emil Corp. Date Particulars Debit Credit 1-May-20Y1 Cash Dr $1,663,000.00            To Bond Payable $1,663,000.00 (To record issue of bond) 1-Nov-20Y1 Interest Expense Dr $83,150.00            To Cash $83,150.00 (To record payment of interest) 1-Nov-20Y5 Bond Payable Dr $1,663,000.00            To Cash $1,613,110.00            To Gain on retirement of bonds $49,890.00 (To record early retirement of callable bonds)

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