P20.6 Saltless Hospital issued $600,00 (face value) of 6 percent, ten year bonds
ID: 2742627 • Letter: P
Question
P20.6 Saltless Hospital issued $600,00 (face value) of 6 percent, ten year bonds at 94 percent and accrued interest on June 1, 20x1. Bond issue costs were $18,000. The bonds, dated June 1, 20x1, pay interest annually on June 1. The hospital’s fiscal year ends on December 31. On January 1, 20x3, Saltless Hospital reacquires $150,000 (face value) of these bonds by purchase in the open market at 90 percent and accrued interest, with brokerage and other reacquisition costs of $300 being paid. Required: Prepare the necessary journal entries at (1) June 1, 20x1, (2) June 30, 20x1, (3) June 1, 20x2, (4) January 1, 20x3.
Explanation / Answer
On June 20x1
A. Entry on issue of bonds
Cash A/c Dr. $56400
Discount on bonds payanle A/c dr. $3600
To Bonds payable A/c Cr. $60000
B. To record Bond issue cost ( then this will be charged to an expense account every year ie total 10years by $ 1800)
Bond issue cost asset A/c Dr. $18000
To Cash A/c Cr. $18000
On June 30, 20x1
Interest Expense a/c Dr. $330
To Discount on bonds payble A/c cr. $30 (3600/10 * /1/12)
To Interest payable A/c cr. $300 ( 60000 *6% * 1/12)
On June 1, 20x2
A.
Interest Expense a/c Dr. $330
To Discount on bonds payble A/c cr. $30 (3600/10 * /1/12)
To Interest payable A/c cr. $300 ( 60000 *6% * 1/12)
B.
Interest payable A/c Dr. $3600
To cash A/c Cr. $3600
NOTE: as monthly entry on june 30 been asked, so assuemd that all interest entries were passed on monthly basis and in end we made the payment.
on jan 20x3
Bonds payable A/c Dr. $150000
Loss on bond redemptionn A/c Dr. $ 3660
Unamortized Bond Issue Costs A/c Cr. $15600
Discount on Bonds Payable A/c Cr. $ 3060
Cash A/c Cr. $135000
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