Entries for Bonds Payable, including bond redemption The following transactions

Question

Entries for Bonds Payable, including bond redemption

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Year 1 July 1. Issued $1,420,000 of five-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 11%, receiving cash of $1,312,965. Interest is payable semiannually on December 31 and June 30. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $10,704 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 2 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $10,704 is combined with the semiannual interest payment. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $10,704 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 3 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $64,221 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

Explanation / Answer

Solution 1:

Solution 2:

Interest expense year 1 = $74,604

Interest expense year 2 = $149,208

Solution 3:

Carrying amount of bond at December 31, year 2 = Face Value - Unamortized discount

= $1,420,000 - ($107,035 - $10,704*3) = $1,345,077

Journal Entries - Winklevoss Inc. Date Particulars Debit Credit Year1, July 1 Cash Dr $1,312,965.00 Discount on bond payable $107,035.00        To Bond Payable $1,420,000.00 (To record issue of bond) Year 1, Dec 31 Interest expense Dr $74,604.00        To Cash $63,900.00        To Discount on bond payable $10,704.00 (To record interest payment and discount amortization) Year 1, Dec 31 Income Summary Dr $74,604.00        To Interest Expense $74,604.00 (To close interest expense account) Year 2, June 30 Interest expense Dr $74,604.00        To Cash $63,900.00        To Discount on bond payable $10,704.00 (To record interest payment and discount amortization) Year 2, Dec 31 Interest expense Dr $74,604.00        To Cash $63,900.00        To Discount on bond payable $10,704.00 (To record interest payment and discount amortization) Year 2, Dec 31 Income Summary Dr $149,208.00        To Interest Expense $149,208.00 (To close interest expense account) Year 3, June 30 Bond Payable Dr $1,420,000.00 Loss on redemption of bonds Dr $35,821.00        To Discount on bond payable $64,221.00        To Cash $1,391,600.00 (To record early retirement of bonds)

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