Cupola Fan Corporation issued 10%, $570,000, 10-year bonds for $543,000 on June

Question

Cupola Fan Corporation issued 10%, $570,000, 10-year bonds for $543,000 on June 30, 2018. Debt issue costs were $3,200. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2019), the corporation exercised its call privilege and retired the bonds for $550,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Required:
1. to 4. Prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2018 & 2019, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Solution:

Journal Entries

Date

General Journal

Debit

Credit

June.30, 2018

Cash (543,000 - Debt Issue Cost 3200)

$539,800

Debt Issue Cost

$3,200

Discount on Bonds Payable (Bal. fig)

$27,000

   Bonds Payable (face value)

$570,000

Dec.31, 2018

Interest Expense

$30,010

   Debt Issue Cost (3200 / 20)

$160

   Discount on Bonds Payable (27000 / 20)

$1,350

   Interest Payable (Face Value 570,000*Stated Interest Rate 10%*1/2)

$28,500

June.30, 2019

Interest Expense

$30,010

   Debt Issue Cost (3200 / 20)

$160

   Discount on Bonds Payable (27000 / 20)

$1,350

   Interest Payable (Face Value 570,000*Stated Interest Rate 10%*1/2)

$28,500

July.1, 2019

Bonds Payable

$570,000

Discount on Bonds Payable (Unamortized Portion 27000 - 1350 - 1350)

$24,300

Bond Issue Cost (3200 - 160 - 160)

$2,880

   Cash

$550,000

   Gain on Retirement of Bonds (Bal. fig)

$47,180

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Date

General Journal

Debit

Credit

June.30, 2018

Cash (543,000 - Debt Issue Cost 3200)

$539,800

Debt Issue Cost

$3,200

Discount on Bonds Payable (Bal. fig)

$27,000

   Bonds Payable (face value)

$570,000

Dec.31, 2018

Interest Expense

$30,010

   Debt Issue Cost (3200 / 20)

$160

   Discount on Bonds Payable (27000 / 20)

$1,350

   Interest Payable (Face Value 570,000*Stated Interest Rate 10%*1/2)

$28,500

June.30, 2019

Interest Expense

$30,010

   Debt Issue Cost (3200 / 20)

$160

   Discount on Bonds Payable (27000 / 20)

$1,350

   Interest Payable (Face Value 570,000*Stated Interest Rate 10%*1/2)

$28,500

July.1, 2019

Bonds Payable

$570,000

Discount on Bonds Payable (Unamortized Portion 27000 - 1350 - 1350)

$24,300

Bond Issue Cost (3200 - 160 - 160)

$2,880

   Cash

$550,000

   Gain on Retirement of Bonds (Bal. fig)

$47,180

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