The following transactions were completed by Winklevoss Inc., whose fiscal year
ID: 2460214 • Letter: T
Question
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, at a market (effective) rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30.
Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar.
Indicate the amount of the interest expense in (a) 2016 and (b) 2017.
Determine the carrying amount of the bonds as of December 31, 2017.
Check Figure: $64,317,346
2016 July 1.Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, at a market (effective) rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30.
Oct. 1. Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank. The note requires annual payments of $40,673, with the first payment occurring on September 30, 2017. Dec. 31. Accrued $3,000 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. 31. Closed the interest expense account. 2017 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. Sept. 30. Paid the annual payment on the note, which consisted of interest of $12,000 and principal of $28,673. Dec. 31. Accrued $2,570 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. 31. Closed the interest expense account. 2018 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) Sept. 30. Paid the second annual payment on the note, which consisted of interest of $10,280 and principal of $30,393.Explanation / Answer
Answer 1. Calulation of Discount on Issue of Bonds Market Value of Bonds payable 74,000,000 Proceeds from sale of Bonds 63,532,267 Discount on Issue of Bonds 10,467,733 Journal Entry Date Particulars Dr. Amt Cr. Amt 1/7/16 Cash Dr. 63,532,267 Discount on issue of Bonds Dr. 10,467,733 To Bonds Payable 74,000,000 (Bonds issued at discount) 1/10/16 Cash Dr. 200,000 To Notes Payable -6% 200,000 (Borrowed by issuing Installment notes to Bank) 31/12/16 Interest Exp. Dr. 3,000 To Interest payable 3,000 (Interest Accrued on Notes - 3 Months) 31/12/2016 Interest Exp Dr. 4,331,693 To Interest Payable 4,070,000 To Discount on Issue of Bonds 261,693 (Interest due) 31/12/2016 Interest Payable Dr. 4,070,000 To Cash 4,070,000 (Interest paid) 31/12/2016 Income Summary Dr. 4,334,693 To Interest Exp. 4,334,693 (Closing entry passed for Interest Exp.) 30/06/2017 Interest Exp Dr. 4,331,693 To Interest Payable 4,070,000 To Discount on Issue of Bonds 261,693 (Interest due) 30/06/2017 Interest Payable Dr. 4,070,000 To Cash 4,070,000 (Interest paid) 30/09/2017 Notes Payable-6% Dr. 28,673 Interest Exp. Dr. 9,000 Interest Payable Dr. 3,000 To Cash 40,673 (Paid the annual payment of Note) 31/12/17 Interest Exp. Dr. 2,570 To Interest payable 2,570 (Interest Accrued on Notes - 3 Months) 31/12/17 Interest Exp Dr. 4,331,693 To Interest Payable 4,070,000 To Discount on Issue of Bonds 261,693 (Interest due) 31/12/17 Interest Payable Dr. 4,070,000 To Cash 4,070,000 (Interest paid) 31/12/17 Income Summary Dr. 4,343,263 To Interest Exp. 4,343,263 (Closing entry passed for Interest Exp.) 30/06/2018 Bonds Payable Dr. 74,000,000 Discount on Red. OF Bonds Dr. 7,940,961 To Discount on Issue of Bonds 9,420,961 To Cash 72,520,000 (redemption of Bonds at Discount) 30/09/2018 Notes Payable-6% Dr. 30,393 Interest Exp. Dr. 7,710 Interest Payable Dr. 2,570 To Cash 40,673 (Paid the annual payment of Note) Amount of Interest Exp. 2016 2017 Interest on Bonds 4,331,693 8,663,386 Interest on Notes 3,000 11,570 Total Interest Exp. 4,334,693 8,674,956 Carrying Value of bonds on Dec. 31, 2017 Bonds Payable 74,000,000 Less: Discount on Issue Of Bonds (9,682,654) Net Bonds Payable 64,317,346
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