Emil Corp. produces and sells wind-energy-driven engines. To finance its operati

Question

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $19,600,000 of 20-year, 7% callable bonds on May 1, 2016 at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions. Be sure to include the year in the date for the entries recording the issue and calling of the bonds. Refer to the Chart of Accounts for exact wording of account titles.

2016

May 1 Issued the bonds for cash at their face amount.

Nov. 1 Paid the interest on the bonds.

2022

Nov. 1 Called the bond issue at 99, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Explanation / Answer

SOLUTION

Date Account titles and Explanation Debit ($) Credit ($) May.1 2016 Cash 19,600,000 Bonds Payable 19,600,000 (To record issuance of bonds at face value) Nov.1 2016 Bond Interest Expense 686,000 Cash ($19,600,000*7%*1/2) 686,000 (To record payment of interest) Nov.1,2022 Bonds Payable 19,600,000   Gain on Redemption of Bonds 196,000 Cash ($19,600,000*99%) 19,404,000

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