8) Prepare journal entries to record the following retirement. (Show computation
ID: 2462990 • Letter: 8
Question
8) Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar.)
The December 31, 2014 balance sheet of a manufacturing company included the following items:
7.5% bonds payable due December 31, 2022 $2,000,000
Unamortized discount on bonds payable 80,000
The bonds were issued on December 31, 2012 at 95, with interest payable on June 30 and December 31. Management uses the straight-line amortization method.
On April 1, 2015, the company retired $400,000 of these bonds at 101 plus accrued interest.
Using the attached T-account format, prepare the entries:
a.March 30, 2015 to recognize the interest payable and the amortization of the discount on the $400,000 bonds to be retired
b.April 1, 2015 to pay the interest due on the $400,000 bonds to be retired
c.April 1, 2015 to retire the $400,000 of bonds
Explanation / Answer
Journal entry has been recorded to record the interest payment and the amortization of the discount. The discount is accounted for as interest expense.
Part 1
Interest Exp dr 8000
Interest Exp Payable ($400,000@ 7.5% @ 3/12) 7500
Discount on bonds payable 500
(Being entry made of interest due)
Part 2
Interest Exp Payable dr 7500
Cash 7500
(Being interest paid)
Part 3
Bonds Payable 400,000
Loss on Redemption of Bonds 19500
Discount on bonds payable [(1/5*80000)-500] 15500
Cash ( 400,000@101) 404000
(Being entry made on retirement of bonds)
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