The following transactions were completed by Winklevoss Inc., whose fiscal year
ID: 2474494 • Letter: T
Question
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
Required:
2016 July 1 Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, at a market (effective) rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30. Oct. 1 Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank. The note requires annual payments of $40,673, with the first payment occurring on September 30, 2017. Dec. 31 Accrued $3,000 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 discount amortization of $261,693 is combined with the semiannual interest payment. 31 Closed the interest expense account. 2017 June 30 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. Sept. 30 Paid the annual payment on the note, which consisted of interest of $12,000 and principal of $28,673. Dec. 31 Accrued $2,570 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 discount amortization of $261,693 is combined with the semiannual interest payment. 31 Closed the interest expense account. 2018 June 30 Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) Sept. 30 Paid the second annual payment on the note, which consisted of interest of $10,280 and principal of $30,393.Explanation / Answer
Journal Entries
Date
Account Titles and Explanation
Debit
Credit
2016
July. 1
Cash
$ 63,532,267
Discount on bonds payable (74000000-63532267)
$ 10,467,733
Bonds payable
$ 74,000,000
(Being bonds issued at discount)
Oct. 1
Cash
$ 200,000
Notes Payable
$ 200,000
(Being amount borrowed)
Dec. 31
Interest Expense
$ 3,000
Interest payable
$ 3,000
(Accrued $3,000 of interest on the installment note)
Dec. 31
Interest Expense (4070000+261693)
$ 4,331,693
Discount on bonds payable
$ 261,693
Cash (74000000*11%/2)
$ 4,070,000
(Being interest paid on bonds and discount amortized)
Dec. 31
Income Summary
$ 4,334,693
Interest Expense (3000+4331693)
$ 4,334,693
(being Interest expense account closed)
2017
June. 30
Interest Expense (4070000+261693)
$ 4,331,693
Discount on bonds payable
$ 261,693
Cash (74000000*11%/2)
$ 4,070,000
(Being interest paid on bonds and discount amortized)
Sept. 30
Interest payable
$ 3,000
Interest Expense (200000*6%*9/12)
$ 9,000
Notes Payable
$ 28,673
Cash
$ 40,673
(Being Installment paid )
Dec. 31
Interest Expense
$ 2,570
Interest payable
$ 2,570
(Accrued $2,570 of interest on the installment note)
Dec. 31
Interest Expense (4070000+261693)
$ 4,331,693
Discount on bonds payable
$ 261,693
Cash (74000000*11%/2)
$ 4,070,000
(Being interest paid on bonds and discount amortized)
Dec. 31
Income Summary
$ 8,674,956
Interest Expense (4331693+9000+2570+4331693)
$ 8,674,956
(being Interest expense account closed)
Journal Entries
Date
Account Titles and Explanation
Debit
Credit
2016
July. 1
Cash
$ 63,532,267
Discount on bonds payable (74000000-63532267)
$ 10,467,733
Bonds payable
$ 74,000,000
(Being bonds issued at discount)
Oct. 1
Cash
$ 200,000
Notes Payable
$ 200,000
(Being amount borrowed)
Dec. 31
Interest Expense
$ 3,000
Interest payable
$ 3,000
(Accrued $3,000 of interest on the installment note)
Dec. 31
Interest Expense (4070000+261693)
$ 4,331,693
Discount on bonds payable
$ 261,693
Cash (74000000*11%/2)
$ 4,070,000
(Being interest paid on bonds and discount amortized)
Dec. 31
Income Summary
$ 4,334,693
Interest Expense (3000+4331693)
$ 4,334,693
(being Interest expense account closed)
2017
June. 30
Interest Expense (4070000+261693)
$ 4,331,693
Discount on bonds payable
$ 261,693
Cash (74000000*11%/2)
$ 4,070,000
(Being interest paid on bonds and discount amortized)
Sept. 30
Interest payable
$ 3,000
Interest Expense (200000*6%*9/12)
$ 9,000
Notes Payable
$ 28,673
Cash
$ 40,673
(Being Installment paid )
Dec. 31
Interest Expense
$ 2,570
Interest payable
$ 2,570
(Accrued $2,570 of interest on the installment note)
Dec. 31
Interest Expense (4070000+261693)
$ 4,331,693
Discount on bonds payable
$ 261,693
Cash (74000000*11%/2)
$ 4,070,000
(Being interest paid on bonds and discount amortized)
Dec. 31
Income Summary
$ 8,674,956
Interest Expense (4331693+9000+2570+4331693)
$ 8,674,956
(being Interest expense account closed)
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