Ridgetop Company issued the following 5-year bonds on January 1, 2013: $100,000

Question

Ridgetop Company issued the following 5-year bonds on January 1, 2013: $100,000 maturity value, 6% annual interest payable semi-annually on July1 and December 31. The market rate of the date of issuance was 7%.

Required: a) Prepare the bond schedule showing interest paid per period, interest expense recorded for each payment period, the amount of the discount remaining at the end of each payment period, and the book (carrying value of the bonds at the end of each payment period.

b) Assume that on July 1, 2007, 40% of the bonds that were issued on Jan. 1, 2013 were called in (retired) by the company. Prepare the necessary journal entry on July 1, 2017 and the necessary journal entry on December 31, 2017.

Explanation / Answer

Ridgetop Company issued the following 5-year bonds on January 1, 2013: $100,000

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