Problem 10-10A The following is taken from the Colaw Company balance sheet. COLA
ID: 2527336 • Letter: P
Question
Problem 10-10A
The following is taken from the Colaw Company balance sheet.
COLAW COMPANY
Balance Sheet (partial)
December 31, 2015
Current Liabilities
Interest payable (for 6 months from July 1 to December 31)
$123,705
Long-term Liabilities
Bonds payable, 9% due January 1, 2026
$2,749,000
Add: Premium on bonds payable
212,500
$2,961,500
Interest is payable semiannually on January 1 and July 1. The bonds are callable on any semiannual interest date. Colaw uses straight-line amortization for any bond premium or discount. From December 31, 2015, the bonds will be outstanding for an additional 10 years (120 months).
Journalize the payment of bond interest on January 1, 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2016
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Prepare the entry to amortize bond premium and to pay the interest due on July 1, 2016, assuming no accrual of interest on June 30. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
July 1, 2016
SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT
Assume that on July 1, 2016, after paying interest, Colaw Company calls bonds having a face value of $1,099,600. The call price is 104. Record the redemption of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
July 1, 2016
SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT
Prepare the adjusting entry at December 31, 2016, to amortize bond premium and to accrue interest on the remaining bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2016
SHOW LIST OF ACCOUNTS
LINK TO TEXT
LINK TO TEXT
Explanation / Answer
Part A Date accounts title and explanation debit credit January 1 bond interest payable 123705 Cash 123705 Part B July 1 bond interest expense (123705-10625) 113080 Premium on bonds payable to (212500/20) 10625 Cash 123705 Part c July 1 bonds payable 1099600 Premium on bonds payable (212500-10625)*40% 80750 Gain on bond redemption 36766 Cash (1099600*104%) 1143584 Part D December 31 bonds interest expense (212500-10625-80750)/2 60563 Premium on bonds payable (10625)*60% 6375 Bonds payable 66938
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