On April 1, 2014, Seminole Company sold 26,100 of its 10%, 14-year, $1,000 face

Question

On April 1, 2014, Seminole Company sold 26,100 of its 10%, 14-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 7,200 of the bonds by issuing 237,600 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $33 per share on March 1, 2015.

Prepare the journal entries needed on the books of Seminole Company to record the following. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

4/1/14

10/1/14

12/31/14

3/1/15

3/1/15

(To record extinguishment of the bonds.)

(a) April 1, 2014: issuance of the bonds. (b) October 1, 2014: payment of semiannual interest. (c) December 31, 2014: accrual of interest expense. (d) March 1, 2015: extinguishment of 7,200 bonds. (No reversing entries made.)

Explanation / Answer

date ACCOUNTS TITLE AND DETAILS DEBIT CREDIT 4-1-15 CASH 97000 TO BOND 97000

(BEING ISSUE BOND)

10-4-15 SEMIANNUAL INTEREST 2610

TO CASH 2610

(BEING INTEREST PAID)

12-31-14 NO ENTRY 0 0

3-2-15 CASH 7200

TO SHARE 7200

(BEING EXTINGUISHMENT OF THE BOND)

3-1-15 CASH 330

TO SHARE 330

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