The following transactions were completed by Hobson Inc., whose fiscal year is t

Question

The following transactions were completed by Hobson Inc., whose fiscal year is the calendar year: 2010 July 1. Issued $10,000,000 of 10-year, 15% callable bonds dated july1, 2010, at an effective of 11, receiving cash of $12,390,085. Interest is payable semi annually on December 31 and June 30. Oct. 1. Borrowed $225,000 as a six year, 8% installment note from Titan Bank. The note requires annual payments of $48,671, with the first payment occurring on September 30, 2011. Dec. 31. Accrued $4,500of interest on the installment note. The interest is payable on the date of the next installment note payment. Dec. 31. Paid the semiannual interest of the bond. Dec. 31. Recorded bond premium amortization of $119,504, which was determined using the straight line method. Dec. 31. Closed the interest expense account.

2012 June 30 recorded the redemption pf the bonds, which were called at 101.5. The balance in the bond premium account is $1,912,069 after payament of interest and amortization of premium have been recorded. (Recored the redemption only.)

1. Journalize the transactions

2. Indicate the amound of the interest expense in 2010 and 2011

3. Determine the carrying amound of the bonds as of Dec. 31, 2011

Explanation / Answer

2) The amount of the interest expense in 2010 and 2011 = cash interest - amortisation amount = 750000 - 119504 = $630496 3) The carrying amount of the bonds as of dec 31, 2011 = $12390085 - (3 * 119504) = $12031573 1) Journal Entries: Date Accounts Titles Debit$ Credit $ July 1 2010 Cash 12390085 Bonds payable 10000000 Premium on Bonds payable 2390085 Dec 31 2010 Intt. Expense 630496 Premium on Bonds payable 119504 Cash 750000 June 30 2012 Bonds payable 10000000 Premium on redeemption of bonds 150000 Premium on Bonds payable 1912069 Cash 10150000 Income on redeemption of Bonds 1912069

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