Assignment 28: Entries for Bonds Payable and Installment Note Transactions

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Entries for Bonds Payable and Installment Note Transactions The following transactions were completed by Almeda Inc., whose fiscal year in the calendar year: 1. Journalize the entries to record the foregoing transactions in chronological order. Year 1 Issued $75,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $85,659,600. Interest is payable semiannually on December 31 and June 30. Issued: 75,000,000 Years: 10 Callable Bonds: 9% Market Rate: 7% Cash: 85,659,600 Year 1 Jul. 1 85,659,600 Cash Discount on Bonds Payable Bonds Payable 10,659,600 75,000,000 Year 1 Oct. 1 Borrowed $270,000 by issuing a six-year, 8% installment note to Main Street Bank. The note requires annual payments of $58,405, with the first payment occurring on September 30, Year 2. Borrowed: 270,000 Installment Note: 8% Annual Payments: 58,405 Year 1 Oct. 1 Cash 270,000 Notes Payable 270,000 Year 1 Dec. 31 Accrued $5,400 of interest on the installment note. The interest is payable on the date of the next installment note payment. Accrued: 5,400 Year 1 Dec. 31 Interest Expense 5,400 Interest Payable 5,400 Year 1 Dec. 31 Paid the semiannual interest on the bonds. The bond premium amortization of $532,980 is combined with the semiannual interest payment. Amortization: 532,980 Year 1 Dec. 31 Interest Expense 3,907,980 Premium on Bonds Payable 532,980 Cash 3,375,000 Year 2 Jun. 30 Paid the semiannual interest on the bonds. The bond premium amortization of $532,980 is combined with the semiannual interest payment. Amortization: 532,980 Year 2 Jun. 30 Interest Expense 3,907,980 Premium on Bonds Payable 532,980 Cash 3,375,000 Year 2 Sept. 30 Paid the annual payment on the note, which consisted of interest of $21,600 and principal of $36,805. Interest: 21,600 Principal: 36,805 Year 2 Sept. 30 Interest Expense 16,200 Interest Payable Notes Payable 36,805 Cash 58,405 5,400 Year 2 Dec. 31 Accrued $4,664 of interest on the installment note. The interest is payable on the date of the next installment note payment Accrued: 4,664 Year 2 Dec. 31 Interest Expense 4,664 Interest Payable 4,664 Year 2 Dec. 31 Paid the semiannual interest on the bonds. The bond premium amortization of $532,980 is combined with the semiannual interest payment. Amortization: 532,980 Year 2 Dec. 31 Interest Expense 3,907,980 Premium on Bonds Payable 532,980 Cash 3,375,000 Year 3 Jun 30 Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $8,527,680 after payment of interest and amortization of premium have been recorded. Record the redemption only. Redemtion: 103% Bond Premium: 8,527,680 Year 3 Jun. 30 Bonds Payable 75,000,000 Loss on Redemtion Bonds 10,777,680 Discount on Bonds Payable 8,527,680 Cash 77,250,000 Year 3 Sep. 30 Paid the second annual payment on the note, which consisted of interest of $18,656 and principal of $39,749. Interest: 18,656 Principal: 39,749 Year 3 Sep. 30 Interest Expense 13,992 Interest Payable 4,664 Notes Payable 39,749 Cash 58,405 2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2. 3. Determine the carrying amount of the bonds as of December 31, Year 2. a. Year 1: 3,913,380 b. Year 2: 7,836,824 Initial carrying amount of bonds: 85,659,600 Discount amotized on Dec. 31, Year 1: 532,980 Discount amortized on June 30, Year 2: 532,980 Discount amotized on Dec. 31, Year 2: 532,980 Carrying amount of bonds, Dec. 31, Year 2: 87,258,540