MP, Chapter 11 Entries for Bonds Payable, including bond redemption The following transactions were completed by Montague Inc., whose fiscal year is the calendar year: 20Y1 July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, 2011, at a market (effective) rate of 7%, 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 premium amortization of $390,852 is combined with the semiannual interest 2012 payment. June 30. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.. Dec. 31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest 2013 payment. 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.) 1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank. When required, round amounts to the nearest dollar. 20Y1 July 1 Cash 62,817,040 Premium on Bonds Payable 7,817,040 dificants to the nearest donor 20Y1 July 1 Cash Premium on Bonds Payable Bonds Payable 62,817,040 7,817,040 55,000,000 Dec. 31 Interest Expense 2,084,148 Premium on Bonds Payable Cash 390,852 2,745,000 X 20Y2 June 30 Interest Expense 2,084,148 Premium on Bonds Payable Cash 390,852 2,745,000 X Dec. 31 Interest Expense Premium on Bonds Payable Cash 20Y3 June 30 Bonds Payable 2,084,1481 390,852 V 2,745,000 X 55,000,000 Premium on Bonds Payable 6,253,632 V Gain on Redemption of Bonds 4,603,630 X Cash 56,650,000 Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account amortization provides equal amounts of amortization over the life of the bond. The gain or loss is the balancing amount need difference between the carrying amount of the bonds and the redemption price. A corporation usually redeems its bonds at a carrying amount of the bonds. 2. Indicate the amount of the interest expense in (a) 20Y1 and (b) 2012. a. 20Y1 b. 2012 2,084,148 4,168,296 3. Determine the carrying amount of the bonds as of December 31, 2012. $ 61,644,484 Feedback Check My Work The carrying amount is the face amount of the bonds less any unamortized discount or plus any unamortized premium. Feedback Check My Work Partially correct