Glen Avon Inc. specializes in the production of telecommunication satellites. Th

Question

Glen Avon Inc. specializes in the production of telecommunication satellites. The company has

a 6-month fiscal end on December 31 and June 30. In 2004 the company decides to expand their

operations and finances it by issuing 4,000 bonds at a 14% coupon rate (annual). The bonds pay

interest on October 31 and April 30, and are due on April 30, 2019.

a. (3 points) Assuming the bonds are issued on April 30, 2004 at 104, record the journal

entry(ies) for the issue.

b. (5 points) Record the proper adjusting entry(ies) for the 6-month fiscal end on June 30, 2004.

c. (4 points) Record the interest payment on October 31, 2014.

d. (8 points) On November 30, 2014, the company purchases 90 percent of the bonds back at

110 plus accrued interest. Record the proper journal entry(ies) for the repurchase.

Explanation / Answer

Let The par value be $ 1000 .So ISsue price will be 1000*104/100 = 1040

Number of years = April 2019-April 2004 = 15 years

Per Year amortisation of premium : 160,000/15 = 10666.67 per year

**30Nov : Balance in Premium on bond payable:160000-1778-3556-800=153866

Date Acount Debit credit April 30,2014 cash [4000*1040] 4160000 Premium on Bond payable 160000 Bond payable [4000*1000] 4000000 [Being Bond issued at premium ] June30,2004 Interest expense 91555 Premium on Bond payable [10666.67*2/12] 1778 Interest payable [4,000,000*.14*2/12] 93,333 [Being Interest accrued for 2 months 1May -30 June] October 31 2014 Interest expense 183111 Interest payable 93,333 Premium on bond payable [10666.67*4/12] 3556 cash [4,000,000*.14*6/12] 280000 [Being interest accrued for 4 months( 1july-31oct) and paid for 1semiannual month] Nov 30,2014 a Interest expense   41200 Premium on bond payable [10666.67*1/12*.90] 800 Interest payable [4000000*.14*1/12*.90] 42000 [Being interest accrued on 90 % bond for one month 1 nov-30 nov] B Bond payable   [4,000,000*.90] 3,600,000 Premium on Bond payable [153866*.90] 138479 Interest payable 42000 Loss on Repurchase of bond 661521 cash   [(4,000,000*110/100)+42000accrued interest] 4442000

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