On April 1, 2014, Seminole Company sold 26,100 of its 10%, 14-year, $1,000 face
ID: 2493316 • Letter: O
Question
On April 1, 2014, Seminole Company sold 26,100 of its 10%, 14-year, $1,000 face value bonds at 97. 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 $33 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.)
Common Stock
Paid-in Capital in Excess of par common stock
2,376,000
5,464,800
Comment
(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 7,200 bonds. (No reversing entries made.)Explanation / Answer
Journal Entries:
Date
Accounts / Explanation
Debit
Credit
April. 1 2014
Cash (26100 Bonds * $970)
$ 25,317,000
Discount on Bonds Payable (26100000-25317000)
$ 783,000
Bonds Payable (26100 Bonds * $1000)
$ 26,100,000
(Being bonds issued at discount)
Oct. 1, 2014
Interest Expense (1305000+27964)
$ 1,332,964
Discount on Bonds Payable = 783000 / (14 years *2)
$ 27,964
Cash (26100000*10%*6/12)
$ 1,305,000
(Being interest on bonds paid and expense recorded)
Dec. 31, 2014
Interest Expense (13982 + 652500)
$ 666,482
Discount on Bonds payable = 27964 *3/6
$ 13,982
Interest Payable (26100000*10%*3/12)
$ 652,500
(Being interest accrued)
Mar. 1 2015
Interest Expense (300000+23303 -180000)
$ 126,429
Interest Payable (7200000*10%*3/12)
$ 180,000
Discount on Bonds Payable = 27964 *(7200 /26100) *5/6
$ 6,429
Cash (7200000*10%*5/12)
$ 300,000
(Being interest on bonds paid and expense recorded)
Mar. 1 2015
Bonds Payable (7200 Bonds * $1000)
$ 7,200,000
Loss on redemption of Bond = (164733+2376000+5464800-7200000)
$ 805,533
Discount on bond payable = 783000*(7200/26100) - (27964*11/6)
$ 164,733
Common Stock (237600 shares *$10)
$ 2,376,000
Paid-in Capital in Excess of par common stock (237600 shares *($33-10)
$ 5,464,800
(Being bonds converted into common shares)
Journal Entries:
Date
Accounts / Explanation
Debit
Credit
April. 1 2014
Cash (26100 Bonds * $970)
$ 25,317,000
Discount on Bonds Payable (26100000-25317000)
$ 783,000
Bonds Payable (26100 Bonds * $1000)
$ 26,100,000
(Being bonds issued at discount)
Oct. 1, 2014
Interest Expense (1305000+27964)
$ 1,332,964
Discount on Bonds Payable = 783000 / (14 years *2)
$ 27,964
Cash (26100000*10%*6/12)
$ 1,305,000
(Being interest on bonds paid and expense recorded)
Dec. 31, 2014
Interest Expense (13982 + 652500)
$ 666,482
Discount on Bonds payable = 27964 *3/6
$ 13,982
Interest Payable (26100000*10%*3/12)
$ 652,500
(Being interest accrued)
Mar. 1 2015
Interest Expense (300000+23303 -180000)
$ 126,429
Interest Payable (7200000*10%*3/12)
$ 180,000
Discount on Bonds Payable = 27964 *(7200 /26100) *5/6
$ 6,429
Cash (7200000*10%*5/12)
$ 300,000
(Being interest on bonds paid and expense recorded)
Mar. 1 2015
Bonds Payable (7200 Bonds * $1000)
$ 7,200,000
Loss on redemption of Bond = (164733+2376000+5464800-7200000)
$ 805,533
Discount on bond payable = 783000*(7200/26100) - (27964*11/6)
$ 164,733
Common Stock (237600 shares *$10)
$ 2,376,000
Paid-in Capital in Excess of par common stock (237600 shares *($33-10)
$ 5,464,800
(Being bonds converted into common shares)
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