Question

Kershaw Electric sold $6,000,000, 10%, 10-year bonds on January 1, 2020. The bonds were dated January 1, 2020, and paid interest on January 1. The bonds were sold at 98.

Prepare entries to record issuance of bonds, interest accrual, and bond redemption.

Instructions

1. Prepare the journal entry to record the issuance of the bonds on January 1, 2020.
2. At December 31, 2020, $8,000 of the Discount on Bonds Payable account has been amortized. Show the balance sheet presentation of the long-term liability at December 31, 2020.
3. On January 1, 2022, when the carrying value of the bonds was $5,896,000, the company redeemed the bonds at 102. Record the redemption of the bonds assuming that interest for the period has already been paid.

Please show all work!

Answer 1

1/1/2020	Cash A/c Dr.	$ 5,880,000.00
	Discount on bond payable A/c Dr.	$      120,000.00
		To 10% Bond A/c		$ 6,000,000.00
31/12/2020	Interest A/c Dr.	$          8,000.00
		To discount on bond payable A/c		$          8,000.00
1/1/2021	Interest A/c Dr.	$      600,000.00
		To Cash a/c		$      600,000.00
Balance Sheet as on 31.12.2020
Assets	Amount	Liability		Amount
		Long term Liability
		Bonds payable	$ 6,000,000.00
		Less: Discount on bond payable (120,000-8000)	$      112,000.00	$ 5,888,000.00
31/12/2021	Interest A/c Dr.	$          8,000.00
		To discount on bond payable A/c		$          8,000.00
1/1/2022	Interest A/c Dr.	$      600,000.00
		To Cash a/c		$      600,000.00
1/1/2022	Bond Payable a/c Dr.	$ 6,000,000.00
		Loss on redemption of Bonds A/c Dr.	$      224,000.00
		To Cash A/c		$ 6,120,000.00
		To discount on bond payable a/c		$      104,000.00