Question

Suomi Corp had a $4,000,000 6% 10-year bonds that were issued on December 31, 2014 at 94, with interest payable semiannually, on June 30 and December 31. Suomi uses straight-line method of amortization. On April 1, 2017, Suomi retired $600,000 of its bonds at 102 plus accrued interest. Prepare the two journal entries to record the retirement and show your computations. Do not use cents - round to nearest dollar.

Answer 1

	Date	Account Titles	Debit $	Credit $
	April1,2017	Interest Expense	66,000
		Bond Discount ( 240,000 / 120 ) x 3		6,000
		Interest Payable ( 4,000,000 x 6% x 3/12)		60,000
		( To record 3 months interest accrual )
	April1,2017	Bond Payable	600,000
		Bond Discount ( 192,000 - 6,000 ) x 6/40	27,900
		Interest Payable	60,000
		Cash (600,000 x 102% ) + 60,000		672,000
		Gain on bond retirement		15,900
		( to record bond retirement )

Working
Date	Interest payment $ @3% of 4,000,000	Interest Expense $ (Payment + Amortization)	Discount amortization $ ( 240,000 / 20 )	Bond Discount $	Carrying Amount $
Dec.31,2014				240,000	3,760,000
June.30, 2015	120,000	132,000	12,000	228,000	3,772,000
Dec.31,2015	120,000	132,000	12,000	216,000	3,784,000
June.30, 2016	120,000	132,000	12,000	204,000	3,796,000
Dec.31,2016	120,000	132,000	12,000	192,000	3,808,000