Entries for Issuing and Calling Bonds; Gain Emil Corp. produces and sells wind-e

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Entries for Issuing and Calling Bonds; Gain

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $841,000 of 20-year, 13% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions:

Called the bond issue at 95, the rate provided in the bond indenture. (Omit entry for payment of interest.)

20Y1 May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. 20Y5 Nov. 1

Called the bond issue at 95, the rate provided in the bond indenture. (Omit entry for payment of interest.)

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Explanation / Answer

Emil Corp

Entries to record issuing and calling of bonds:

Date

Account Titles and Explanation

Debit

Credit

May 1, 20Y1

Cash

$841,000

Bonds Payable

$841,000

(To record issue of bonds at face value)

Nov 1, 20Y1

Interest Expense

$54,565

Cash

$54,565

(To record payment of interest on bonds 841,000 x 13% x 6/12 = $54,565)

Nov 1, 20Y1

Bonds Payable

$841,000

Cash

$798,950

Gain on Call

$42,050

(To record gain on Call of bond issue at $95)

Notes:

Face value $841,000

Interest rate 13%

Semi-annual interest payment = 841,000 x 13% x 6/12 = $54,565

Face value of bonds - $100

Call value = $95

Number of bonds =$841,000 /100 = 8,410 bonds

Call value = 8,410 x 95 = $798,950

Gain on call = 8,410 x 5 = $42,050

Date

Account Titles and Explanation

Debit

Credit

May 1, 20Y1

Cash

$841,000

Bonds Payable

$841,000

(To record issue of bonds at face value)

Nov 1, 20Y1

Interest Expense

$54,565

Cash

$54,565

(To record payment of interest on bonds 841,000 x 13% x 6/12 = $54,565)

Nov 1, 20Y1

Bonds Payable

$841,000

Cash

$798,950

Gain on Call

$42,050

(To record gain on Call of bond issue at $95)

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