In: Accounting
Solve the follwing problem.
CHART OF ACCOUNTSWinklevoss Inc.General Ledger
ASSETS | |
---|---|
110 | Cash |
111 | Petty Cash |
121 | Accounts Receivable |
122 | Allowance for Doubtful Accounts |
126 | Interest Receivable |
127 | Notes Receivable |
131 | Merchandise Inventory |
141 | Office Supplies |
142 | Store Supplies |
151 | Prepaid Insurance |
191 | Land |
192 | Store Equipment |
193 | Accumulated Depreciation-Store Equipment |
194 | Office Equipment |
195 | Accumulated Depreciation-Office Equipment |
LIABILITIES | |
---|---|
210 | Accounts Payable |
221 | Salaries Payable |
231 | Sales Tax Payable |
232 | Interest Payable |
241 | Notes Payable |
251 | Bonds Payable |
252 | Discount on Bonds Payable |
253 | Premium on Bonds Payable |
EQUITY | |
---|---|
311 | Common Stock |
312 | Paid-In Capital in Excess of Par-Common Stock |
315 | Treasury Stock |
321 | Preferred Stock |
322 | Paid-In Capital in Excess of Par-Preferred Stock |
331 | Paid-In Capital from Sale of Treasury Stock |
340 | Retained Earnings |
351 | Cash Dividends |
352 | Stock Dividends |
390 | Income Summary |
REVENUE | |
---|---|
410 | Sales |
610 | Interest Revenue |
611 | Gain on Redemption of Bonds |
EXPENSES | |
---|---|
510 | Cost of Merchandise Sold |
515 | Credit Card Expense |
516 | Cash Short and Over |
521 | Sales Salaries Expense |
522 | Office Salaries Expense |
531 | Advertising Expense |
532 | Delivery Expense |
533 | Repairs Expense |
534 | Selling Expenses |
535 | Rent Expense |
536 | Insurance Expense |
537 | Office Supplies Expense |
538 | Store Supplies Expense |
541 | Bad Debt Expense |
561 | Depreciation Expense-Store Equipment |
562 | Depreciation Expense-Office Equipment |
590 | Miscellaneous Expense |
710 | Interest Expense |
711 | Loss on Redemption of Bonds |
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
Year 1 | ||
July | 1 | Issued $76,600,000 of 20-year, 8% callable bonds dated July 1, Year 1, at a market (effective) rate of 9%, receiving cash of $69,552,279. Interest is payable semiannually on December 31 and June 30. |
Dec. | 31 | Paid the semiannual interest on the bonds. The bond discount amortization of $176,193 is combined with the semiannual interest payment. |
31 | Closed the interest expense account. | |
Year 2 | ||
June | 30 | Paid the semiannual interest on the bonds. The bond discount amortization of $176,193 is combined with the semiannual interest payment. |
Dec. | 31 | Paid the semiannual interest on the bonds. The bond discount amortization of $176,193 is combined with the semiannual interest payment. |
31 | Closed the interest expense account. | |
Year 3 | ||
June | 30 | Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $6,342,949 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) |
Required:
1. | Journalize the entries to record the transactions. Round all amounts to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles. |
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. |
Amount in $ | ||||||
Date | Account title & Explanation | Debit | Credit | |||
year 1 | ||||||
Jul-01 | Cash | 69552279 | ||||
Discount on Bonds payable | 7047721 | |||||
Bonds payable | 76600000 | |||||
To record the issuance of bonds | ||||||
Dec-31 | Interest Expense | 3240193 | ||||
Discount on Bonds payable(on straightline basis) | 176193 | |||||
Cash | 3064000 | |||||
To record the first semiannual interest on bonds | ||||||
Dec-31 | Income summery | 3240193 | ||||
Interest Expense | 3240193 | |||||
To close the Interest expense | ||||||
Year 2 | ||||||
Jun-30 | Interest Expense | 3240193 | ||||
Discount on Bonds payable(on straightline basis) | 176193 | |||||
Cash | 3064000 | |||||
To record the semiannual interest on bonds | ||||||
Dec-31 | Interest Expense | 3240193 | ||||
Discount on Bonds payable(on straightline basis) | 176193 | |||||
Cash | 3064000 | |||||
To record the semiannual interest on bonds | ||||||
Dec-31 | Income summery | 6480386 | ||||
Interest Expense | 6480386 | |||||
To close the Interest expense | ||||||
Year 3 | ||||||
Jun-30 | Interest Expense | 3240193 | ||||
Discount on Bonds payable(on straightline basis) | 176193 | |||||
Cash | 3064000 | |||||
To record the semiannual interest on bonds | ||||||
Jun-30 | Bonds Payable | 76600000 | ||||
Discount on Bonds payale | 6342949 | |||||
Loss on redemption of bonds | 4810949 | Balancing | ||||
Cash | 75068000 | |||||
Requirement 2 | ||||||
Interest Expense for | ||||||
Year | ||||||
1 | 3240193 | |||||
2 | 6480386 | |||||
Requirement 3 | ||||||
Carrying amount of bonds as of December 31, Year 2 | ||||||
Cash Received towards bonds at July 1, Year 1 | 69552279 | |||||
Add : Amortized bond discount for year 1 | 176193 | |||||
Add : Amortized bond discount for year 2 | 352386 | |||||
Carrying amount of bonds as of December 31, Year 2 | 70080858 | |||||