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| Cupola Fan Corporation issued 12%, $430,000, 10-year bonds for $412,000 on June 30, 2016. Debt issue costs were $1,800. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2017), the corporation exercised its call privilege and retired the bonds for $415,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. |
| Required: |
| 1. to 4. | Prepare the necessary journal entries. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.) |
Expert Answer
30/6/16 Entry for bond issue at discount
Bank a/c Dr 412,000
Discount on issue of Bonds a/c Dr 18,000
To !2% Bonds a/c 430,000
30/6/16 Entry for bond issue expenses
Bond issue expense a/c Dr 1800
To Bank A/c 1800
31/12/16 Entry for interest payment
Interest a/c Dr 25,800
To Bank a/c 25,800
31/12/16 Entry for 6 monthly amortization on straight line basis
Bond issue expenses written off a/c Dr 990
To discount on issue of bonds a/c 900
To Bonds issue expenses 90
30/6/2017 Entry for 2nd interest payment
Interest a/c Dr 25,800
To Bank a/c 25,800
30/6/2017 Entry for the next 6 monthly amortization on straight line basis
Bond issue expenses written off a/c Dr 990
To discount on issue of bonds a/c 900
To Bonds issue expenses 90
1/7/2017 Entry on Bonds retirement. ( with the unamortized amount written off)
12% Bonds A/c Dr 430,000
Bonds issue expenses a/c Dr 2,820 ( bal fig)
To Bank a/c 415,000
To Discount on issue of Bonds a/c 16,200 (18,000-900-900)
To Bonds issue expenses a/c 1620 (1800-90-90)
