Entries for Bonds Payable, including bond redemption *Please find Year 3 - Loss

Question

Entries for Bonds Payable, including bond redemption

*Please find Year 3 - Loss of redemption on bonds and discount on bonds payable*

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Year 1 July 1. Issued $4,630,000 of five-year, 7% callable bonds dated July 1, Year 1, at a market (effective) rate of 8%, receiving cash of $4,442,231. Interest is payable semiannually on December 31 and June 30. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 2 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 3 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $112,661 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

Explanation / Answer

Part 1 --- Journal Entries

Date

Account

Debit

Credit

Year 1

1-Jul

Cash

$4,442,231

Discount on bonds payable

$187,769

Bonds payable

$4,630,000

Dec. 31-Bond

Interest expense (bal fig)

$180,827

Discount on bonds payable

$18,777

Cash (Face Value 4630,000*Coupon Rate 7%*1/2)

$162,050

Dec. 31-Closing

Income summary

$180,827

Interest expense

$180,827

Year 2

30-Jun

Interest expense

$180,827

Discount on bonds payable

$18,777

Cash

$162,050

Dec. 31-Bond

Interest expense

$180,827

Discount on bonds payable

$18,777

Cash

$162,050

Dec. 31-Closing

Income summary

$361,654

Interest expense

$361,654

Year 3

30-Jun

Bonds payable

$4,630,000

Loss on redemption of bonds (bal fig)

$20,061

Discount on bonds payable

$112,661

Cash (4630,000*98%)

$4,537,400

Part 2---

Interest Expense Year 1 = $180,827

Interest Expense Year 2 = $361,654

Part 3 --- Carrying Amount of the bonds as of Dec 31, Year 2 = Face Value of the Bonds 4,630,000 - (Total Bond Discount - Amortization of Bond Discount)

= 4,630,000 - (187,769 - 18,777 - 18,777 - 18,777)

= 4,630,000 - 131,438

= $4,498,562

Date

Account

Debit

Credit

Year 1

1-Jul

Cash

$4,442,231

Discount on bonds payable

$187,769

Bonds payable

$4,630,000

Dec. 31-Bond

Interest expense (bal fig)

$180,827

Discount on bonds payable

$18,777

Cash (Face Value 4630,000*Coupon Rate 7%*1/2)

$162,050

Dec. 31-Closing

Income summary

$180,827

Interest expense

$180,827

Year 2

30-Jun

Interest expense

$180,827

Discount on bonds payable

$18,777

Cash

$162,050

Dec. 31-Bond

Interest expense

$180,827

Discount on bonds payable

$18,777

Cash

$162,050

Dec. 31-Closing

Income summary

$361,654

Interest expense

$361,654

Year 3

30-Jun

Bonds payable

$4,630,000

Loss on redemption of bonds (bal fig)

$20,061

Discount on bonds payable

$112,661

Cash (4630,000*98%)

$4,537,400

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