On April 1, 2014, Seminole Company sold 26,100 of its 10%, 14-year, $1,000 face
ID: 2426864 • Letter: O
Question
On April 1, 2014, Seminole Company sold 26,100 of its 10%, 14-year, $1,000 face value bonds at 96. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 7,700 of the bonds by issuing 254,100 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $32 per share on March 1, 2015. Prepare the journal entries needed on the books of Seminole Company to record the following.
(a) April 1, 2014: issuance of the bonds. (b) October 1, 2014: payment of semiannual interest. (c) December 31, 2014: accrual of interest expense. (d) March 1, 2015: extinguishment of 7,700 bonds. (No reversing entries made.)
Explanation / Answer
Date Accounts Title Dr Cr April 1,2014 Cash 25056000 Discount on issue of Bond Payable 1044000 10% Bond payable 26100000 (Being $1000 face value bond issued at $960) Oct 1.2014 Interest expenses 1342286 Cash 1305000 Discount on issue of Bond Payable (1044000/14*2) 37286 Dec 31 2014 Interest expenses 671142.9 Accured Interest for 3 months 652500 1305000*.5 Discount on issue of Bond Payable 3 months 18642.86 37285.3*.5 Interest expenses 447428.6 Accured Interest for 2 months 435000 Discount on issue of Bond Payable 2 months 12428.57 1-Apr Accured Interest 1087500 Cash 1087500 1-Mar-15 10% Bond Payable 7700*1000 7700000 Loss on Extinguishment 719026 Discount on issue of Bond Payable(unamortised) 287826 Common Stock 2541000 Additional paid in capital 5590200 Note Carrying value of bond Face Value 7700000 Unamortized Discount 287826 Carrying value of bond 7412174 Common stock issed at $32 8131200 Loss on Extinguishment 719026 Discount on issue of Bond Payable(unamortised) Total Discount 7700*40 308000 Amortized for 11/12 year=.917 years 308000/14*.917 20174 Unmortized 287826
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