PROBLEM8 10 points) Mellilo Corporation issued $5 million of 20-year, 9 percent

Question

PROBLEM8 10 points) Mellilo Corporation issued $5 million of 20-year, 9 percent bonds on July 1, 2015, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds mature on June 30, 2035. Mellilo's fiscal year ends on December 31. Prepare the following journal entries: a) July 1, 2015, to record the issuance of the bonds. b) December 31, 2015, to pay the interest and to amortization the bond discount. c) June 30, 2035, to pay interest, amortize the bond discount, and retire the bonds at maturity (make two separate entries).

Explanation / Answer

Jul-01 Cash 4900000 =5000000*0.98 Discount on bonds payable 100000        Bonds payable 5000000 Dec-31 Interest expense 227500        Discount on bonds payable 2500 =100000/40         Cash 225000 =5000000*9%/2 Jun-30 Interest expense 227500        Discount on bonds payable 2500         Cash 225000 Jun-30 Bonds payable 5000000        Cash 5000000

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