On January 1, 2015, Shea Company issues 700 bonds, 15 years (1000 par value bond
ID: 2611883 • Letter: O
Question
On January 1, 2015, Shea Company issues 700 bonds, 15 years (1000 par value bonds at 97) with a coupon rate of 6% and maturing in 2030. The straight line method is used to amortize any bond discount or premium on a semi-annual basis. Be sure to label the discount or premium as: discount on bonds within long-term liability or premium on bonds within long-term liability (the discount r premium in the system relates to the sale of inventory and does not apply here). Also label to cash inflow and outflows from the bonds including interest payments as: Cash, Bonds- within the bank and checking account. Do not forget the journals required every six months.
Two years later, on January 1, 2017, Shea retires 20% of these bonds by buying them on the open market at 104 (or $1040 a bond). All interest and amortization is accounted for by two separate journal entries for each and paid through December 31, 2016, the day before the purchase is to occur. Purchase these bonds with Cash, Bonds within the bank and checking account
Required:
In QuickBooks™, provide the journal entry at January 1, 2015 for the issuance of the 700 bonds.
In QuickBooks™, provide the entries for interest expense and amortization expense up to December 31, 2016.
In QuickBooks™, provide the journal entry which retires 20% (140 bonds) of the bond in the public market.
Go to Company widget, select settings and then chart of accounts. Select Cash, bonds and Bonds, Liability registers. Click on each and you will see the transactions you made in each register. Copy and paste (or export) each to word document being sure two columns of number show and submit to the assignment area.
Explanation / Answer
Answer:
Journal entries
date
Account and explanation
Debit
Credit
Jan 1 2015
Cash inflow(700*10000)97%
679,000
Bond payable(long term liability)
700,000
Bond discount
21000
To record the issuance of bond payable
30-Jun
Interest expense
583
583
2015
Amortization of discount (21000/36)
(to amortise discount)
31-Dec
Interest expense
583
2015
Amortization of discount (21000/36)
583
(to amortise discount)
Dec 31 2015
Interest expense (700000*6%)
42000
Cash outflow
42000
(to record the payment of interest
Jun 30 2016
Interest expense
583
Amortization of discount (21000/36)
583
(to amortise discount)
Dec 31 2016
Interest expense
583
Amortization of discount (21000/36)
583
(to amortise discount)
Dec 31 2016
Interest expense (700000*6%)
42000
Cash outflow
42000
(to record the payment of interest
1-Jan
Bond payable(140*1000)
140,000
2017
Loss on retirement of bonds
5,833
Discount on bonds[(140*1000)*3%]-(42000/36)*2years
233
Cash 140*1040
145,600
To record the retirement of bond
Journal entries
date
Account and explanation
Debit
Credit
Jan 1 2015
Cash inflow(700*10000)97%
679,000
Bond payable(long term liability)
700,000
Bond discount
21000
To record the issuance of bond payable
30-Jun
Interest expense
583
583
2015
Amortization of discount (21000/36)
(to amortise discount)
31-Dec
Interest expense
583
2015
Amortization of discount (21000/36)
583
(to amortise discount)
Dec 31 2015
Interest expense (700000*6%)
42000
Cash outflow
42000
(to record the payment of interest
Jun 30 2016
Interest expense
583
Amortization of discount (21000/36)
583
(to amortise discount)
Dec 31 2016
Interest expense
583
Amortization of discount (21000/36)
583
(to amortise discount)
Dec 31 2016
Interest expense (700000*6%)
42000
Cash outflow
42000
(to record the payment of interest
1-Jan
Bond payable(140*1000)
140,000
2017
Loss on retirement of bonds
5,833
Discount on bonds[(140*1000)*3%]-(42000/36)*2years
233
Cash 140*1040
145,600
To record the retirement of bond
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