Entries for Bonds Payable, including bond redemption The following transactions

Question

Entries for Bonds Payable, including bond redemption The following transactions were completed by Montague Inc., whose fiscal year is the calendar year: Year 1 July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 796, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30 Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment. 31. Closed the interest expense account. Year 2 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment. Dec. 31 31. Closed the interest expense account. Year 3 June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)

Explanation / Answer

YEAR 1 Cash 62817040 1-Jul Premium on bonds payable 7817040 Bonds payable 55000000 31-Dec Interest expense 2084148 Premium on bonds payable 390852 Cash (55000000*9%*1/2) 2475000 31-Dec Income summary 2084148 Interest expense 2084148 Year 2 30-Jun Interest expense 2084148 Premium on bonds payable 390852 Cash (55000000*9%*1/2) 2475000 31-Dec Interest expense 2084148 Premium on bonds payable 390852 Cash (55000000*9%*1/2) 2475000 31-Dec Income summary 4168296 Interest expense 4168296 Year 3 30-Jun Bonds payable 55000000 Premium on bonds payable 6253632 Gain on redemption of bonds 2953632 Cash (55000000*103%) 58300000

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