Question

On April 1, 2020, Larkspur Company sold 16,200 of its 12%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2021, Larkspur took advantage of favorable prices of its stock to extinguish 7,500 of the bonds by issuing 247,500 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $32 per share on March 1, 2021.

Prepare the journal entries needed on the books of Larkspur Company to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a)		April 1, 2020: issuance of the bonds.
(b)		October 1, 2020: payment of semiannual interest.
(c)		December 31, 2020: accrual of interest expense.
(d)		March 1, 2021: extinguishment of 7,500 bonds. (No reversing entries made.)

Answer 1

Date	Account Titles	Debit $	Credit $
April.1 2020	Cash ( 16,200 x 1,000 x 97% )	15,714,000
	Discount on Bond	486,000
	Bond Payable (16,200 x 1,000 )		16,200,000
October .1 2020	Interest Expense	988,200
	Discount on Bond ( 486,000 / 30)		16,200
	Cash ( 16,200 x 1,000 x 12% x 6/12 )		972,000
December .1,2020	Interest Expense	494,100
	Discount on Bond ( 486,000 /30 ) x 1/2		8,100
	Interest payable (16,200 x 1,000 x 12% x 3/12)		486,000
March.1 2021	Bond Payable ( 7,500 x 1,000 )	7,500,000
	Loss on Bond retirement	631,250
	Discount on Bond (486,000 - 16,200 - 8,100 - 5,400 ) x 7,500/16,200		211,250
	Common Stock ( 247,500 x 10 )		2,475,000
	Paid in Capital in excess of par-Common Stock		5,445,000
	(247,500 x 22 )