On April 1, 2014, Seminole Company sold 18,360 of its 10%, 15-year, $1,000 face

Question

On April 1, 2014, Seminole Company sold 18,360 of its 10%, 15-year, $1,000 face value bonds at 98. 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 7,200 of the bonds by issuing 237,600 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. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

4/1/14

10/1/14

12/31/14

3/1/15

3/1/15

(To record extinguishment of the bonds.)

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Explanation / Answer

Journal Entries

Working Notes

Discount on Bonds = 18360 x 20 = 367200

Semiannual amortization of discount = 367200/30 =12240

Date Account Titles and explanation Debit($) Credit($) 4/1/14 Cash 17992800 Discount on issue of bonds 367200 Bonds Payable 18360000 10/1/14 Interest Expense 930240 Discount on issue of bond 12240 Cash 918000 12/31/14 Interest Expenses 465120 Discount on issue of bond 6120 Interest payable 459000 3/1/15 Interest Expenses 465120 Interest 459000 Discount on issue of bond 6120 Cash A/c 918000 3/1/15 Bonds payable 7200000 Loss on redemption of bonds 537600 Discount on issue of bonds 134400 Common stock 2376000 Additional paid in capital 5227200

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