Entries for Bonds Payable, including bond redemption The following transactions

Question

Entries for Bonds Payable, including bond redemption

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Year 1 July 1. Issued $4,630,000 of five-year, 7% callable bonds dated July 1, Year 1, at a market (effective) rate of 8%, receiving cash of $4,442,231. Interest is payable semiannually on December 31 and June 30. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 2 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment. Dec. 31. Closed the interest expense account. Year 3 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $112,661 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

Explanation / Answer

Date Account Debit Credit Year 1 1-Jul Cash $4,442,231 Discount on Bonds payable $187,769 (4630000-4442231) Bonds payable $4,630,000 Dec. 31-Bond Interest expense $180,827 (162050+18777) Discount on Bonds Payable $18,777 Cash $       162,050 (4630000*0.07)/2 Dec. 31-Closing Income Statement Accounts $       180,827 Interest expense $       180,827 Year 2 30-Jun Interest expense $180,827 Discount on Bonds Payable $18,777 Cash $       162,050 Dec. 31-Bond Interest expense $180,827 Discount on Bonds Payable $18,777 Cash $       162,050 Dec. 31-Closing Income Statement Accounts $361,654 (180827+180827) Interest expense $361,654 Year 3 30-Jun Bonds Payable $4,630,000 Discount on Bonds Payable $112,661 Loss on Redemption of Bonds $20,061 (4537400+112661-4630000) Cash $4,537,400 (4630000*0.98) 2a Amount of Interest expense in Year1 $180,827 b Amount of Interest expense in Year2 $361,654 3 Carrying Amount of Bonds as on June 30 Year3 $4,517,339 (4630000-112661) Carrying amount of Bonds as on December 31 Year2 $4,498,562 (4517339-18777)

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