Entries for bonds payable and installment note transactions The following transa
ID: 2425544 • Letter: E
Question
Entries for bonds payable and installment note transactions The following transactions were completed by Montague Inc., whose fiscal year is the calendar year. 2014 July 1. Issued $155,000,000 of 10-yearr. 9% callable bonds dated July 1. 2014. at a market (effective) rate of 7%, receiving cash of $62,817,040 Interest to payable semiannually on December 31 and June 30. Oct. 1. Borrowed $1450, 000 by issuing a six-year. 8% installment note to Intexicon Bank The note requires annual payments of $97,342, with the first payment occurring on September 30, 2015. Dec. 31. Accrued $9,000 of interest on the installment note The interest is payable on the date of the next installment note payment 31. Paid the semiannual interest on the bonds The bond premium is amortized annually in a separate journal entry. 31. Recorded bond premium amortization of $390,852 which was determined using the straight-line method 31. Closed the interest expense account 2015 June 30 Paid the semiannual interest on the bonds The bond premium is amortized annually in a separate journal entry Sept. 30. Paid the annual payment on the note, which consisted of Interest of $36,000 and principal of $61,342. Dec 31. Accrued $7,773 of interest on the installment note The interest to pay able on the date of the next installment note payment 31. Paid the semiannual interest on the bonds The bond premium to amortized annually in a separate journal entry 31. Recorded bond premium amortization of $781,704, which was determined using the straight-line method 31. Closed the interest expense account 2016 June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.) Sept 30. Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249. Instructions Journalize the entries to record the foregoing transactions Indicate the amount of the interest expense in (a) 2014 and (b) 2015 Determine the carrying amount of the bonds as of December 31, 2015.Explanation / Answer
Date Particulars Amount Amount 01-07-2014 Cash 6,28,17,040.00 To 9% Callable bond 5,50,00,000.00 To Premium on issue 78,17,040.00 01-10-2014 Cash 4,50,000.00 To 8 % Notes payble 4,50,000.00 31-12-2014 Interest Expense 9,000.00 To Accrued interest - Notes 9,000.00 31-12-2014 Interest Expense 24,75,000.00 To Cash 24,75,000.00 31-12-2014 Bond Premium 3,90,852.00 To Interest Expenses 3,90,852.00 31-12-2014 Income statement 20,93,148.00 To Interest Expenses 20,93,148.00 30-06-2014 Interest Expense 24,75,000.00 To Cash 24,75,000.00 30-06-2014 Bond Premium 3,90,852.00 To Interest Expenses 3,90,852.00 30-09-2014 Interest Expense 27,000.00 Accrued Interest 9,000.00 8 % Note payable 61,342.00 To Cash 97,342.00 31-12-2015 Interest Expense 7,773.00 To Accrued interest - Notes 7,773.00 31-12-2015 Interest Expense 24,75,000.00 To Cash 24,75,000.00 Bond Premium 3,90,852.00 To Interest Expenses 3,90,852.00 Income statement 20,91,921.00 To Interest Expenses 20,91,921.00 30-06-2016 9 % bond payable 5,50,00,000.00 Bond Premium 62,53,632.00 To Cash 5,66,50,000.00 To Profit on redumption 46,03,632.00 30-09-2014 Interest Expense 23,320.00 Accrued Interest 7,773.00 8 % Note payable 66,249.00 To Cash 97,342.00
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