On April 1, 2017, Wholly Crepe Co. issued 10-year bonds with a face value of $50

Question

On April 1, 2017, Wholly Crepe Co. issued 10-year bonds with a face value of $500,000 at 95. The bonds carry a stated rate of 3%, payable each March 31 and September 30.

QUESTIONS:

1. Prepare the journal entry to show the issuance of the bonds on April 1, 2017. (1 point)

2. Prepare the journal entry to show the payment of interest on September 30, 2017. (1 point)

3. Prepare any necessary journal entry which may be required on December 31, 2017. (1 point)

4. On April 1, 2022, after the payment of interest, Wholly Crepe Co. redeems all of the bonds at 104. What is the gain or loss Wholly Crepe Co. must report as a result of this redemption? (Merely giving us an amount will be insufficient; you must show all of your work.) (3 points)

Explanation / Answer

Journal entry :

Date accounts & explanation debit Credit Apr 1,2017 Cash (500000*95/100) 475000 Discount on bonds payable 25000 Bonds payable 500000 (To record issue bonds payable) Sep 30,2017 Interest expense 8750 Discount on bonds payable (25000/20) 1250 Cash (500000*3%*6/12) 7500 (To record payment of interest) Dec 31,2017 Interest expense 4375   Discount on bonds payable (25000/10)*3/12 625 Interest payable (500000*3%*3/12) 3750 (To record interest payable) Apr 1,2022 Bonds payable 500000 Loss on redemption of bonds 32500 Discount on bonds payable (25000/10)*5 12500 Cash (500000*1.04) 520000 (To record redemption of bonds)

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