The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Year 1
Question:
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
Year 1 | |
July 1. | Issued $4,780,000 of five-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 10%, receiving cash of $4,595,449. Interest is payable semiannually on December 31 and June 30. |
Oct. 1. | Borrowed $120,000 by issuing a 10-year, 7% installment note to Nicks Bank. The note requires annual payments of $17,085, with the first payment occurring on September 30, Year 2. |
Dec. 31. | Accrued $2,100 of interest on the installment note. The interest is payable on the date of the next installment note payment. |
31. | Paid the semiannual interest on the bonds. The bond discount amortization of $18,455 is combined with the semiannual interest payment. |
Year 2 | |
June 30. | Paid the semiannual interest on the bonds. The bond discount amortization of $18,455 is combined with the semiannual interest payment. |
Sept. 30. | Paid the annual payment on the note, which consisted of interest of $8,400 and principal of $8,685. |
Dec. 31. | Accrued $1,948 of interest on the installment note. The interest is payable on the date of the next installment note payment. |
31. | Paid the semiannual interest on the bonds. The bond discount amortization of $18,455 is combined with the semiannual interest payment. |
Year 3 | |
June 30. | Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $110,731 after payment of interest and amortization of discount have been recorded. Record the redemption only. |
Sept. 30. | Paid the second annual payment on the note, which consisted of interest of $7,792 and principal of $9,293. |
Required:
Round all amounts to the nearest dollar.
1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank.
Date | Account | Debit | Credit |
---|---|---|---|
Year 1 | |||
July 1 | Bonds Payable Cash Gain on Bonds Payable Interest Expense Interest Payable | fill in the blank 2 | fill in the blank 3 |
Bonds Payable Discount on Bonds Payable Interest Expense Loss on Bonds Payable Premium on Bonds Payable | fill in the blank 5 | fill in the blank 6 | |
Bonds Payable Cash Discount on Bonds Payable Interest Expense Premium on Bonds Payable | fill in the blank 8 | fill in the blank 9 | |
Oct. 1 | Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 11 | fill in the blank 12 |
Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 14 | fill in the blank 15 | |
Dec. 31-Note | Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 17 | fill in the blank 18 |
Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 20 | fill in the blank 21 | |
Dec. 31-Bond | Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 23 | fill in the blank 24 |
Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | fill in the blank 26 | fill in the blank 27 | |
Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 29 | fill in the blank 30 | |
Year 2 | |||
June 30 | CashDiscount on Bonds PayableInterest ExpenseInterest PayableNotes Payable | fill in the blank 32 | fill in the blank 33 |
Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | fill in the blank 35 | fill in the blank 36 | |
Bonds PayableCashInterest ExpenseInterest PayableInterest revenue | fill in the blank 38 | fill in the blank 39 | |
Sept. 30 | Accounts PayableBonds PayableCashDiscount on Bonds PayableInterest Expense | fill in the blank 41 | fill in the blank 42 |
Accounts PayableBonds PayableCashInterest PayableLoss on Bonds Payable | fill in the blank 44 | fill in the blank 45 | |
Bonds PayableCashDiscount on Bonds PayableGain on Bonds PayableNotes Payable | fill in the blank 47 | fill in the blank 48 | |
Bonds PayableCashInterest ExpenseInterest PayableNotes Payable | fill in the blank 50 | fill in the blank 51 | |
Dec. 31-Note | CashDiscount on Bonds PayableInterest ExpenseInterest PayableNotes Payable | fill in the blank 53 | fill in the blank 54 |
CashDiscount on Bonds PayableInterest ExpenseInterest PayableNotes Payable | fill in the blank 56 | fill in the blank 57 | |
Dec. 31-Bond | Discount on Bonds PayableInterest ExpenseInterest PayableLoss on Bonds PayableNotes Payable | fill in the blank 59 | fill in the blank 60 |
Accounts PayableBonds PayableDiscount on Bonds PayableInterest ExpenseInterest Payable | fill in the blank 62 | fill in the blank 63 | |
Bonds PayableCashGain on Bonds PayableInterest ExpenseInterest Payable | fill in the blank 65 | fill in the blank 66 | |
Year 3 | |||
June 30 | Bonds PayableCashGain on Redemption of BondsInterest ExpenseNotes Payable | fill in the blank 68 | fill in the blank 69 |
CashDiscount on Bonds PayableInterest ExpenseLoss on Redemption of BondsNotes Payable | fill in the blank 71 | fill in the blank 72 | |
Bonds PayableDiscount on Bonds PayableGain on Redemption of BondsInterest ExpenseInterest Revenue | fill in the blank 74 | fill in the blank 75 | |
Bonds PayableCashGain on Redemption of BondsInterest ExpenseNotes Payable | fill in the blank 77 | fill in the blank 78 | |
Sept. 30 | Accounts PayableBonds PayableCashGain on Bonds PayableInterest Expense | fill in the blank 80 | fill in the blank 81 |
Bonds PayableCashDiscount on Bonds PayableInterest PayableLoss on Bonds Payable | fill in the blank 83 | fill in the blank 84 | |
Bonds PayableCashDiscount on Bonds PayableLoss on Redemption of BondsNotes Payable | fill in the blank 86 | fill in the blank 87 | |
CashDiscount on Bonds PayableInterest ExpenseInterest PayableNotes Payable | fill in the blank 89 | fill in the blank 90 |
2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.
a. Year 1 $fill in the blank 91
b. Year 2 $fill in the blank 92
3. Determine the carrying amount of the bonds as of December 31, Year 2.
$fill in the blank 93