Question

Prepare journal entries to record the following transactions relating to long-term bonds of Kirby, Inc. (Show computations.)

(a) On June 1, 2011, Kirby, Inc. issued $3,000,000, 6% bonds for $2,938,200, which includes accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, 2021. The bonds are callable at 102.

(b) On August 1, 2011, Kirby paid interest on the bonds and recorded amortization. Kirby uses straight-line amortization.

(c) On February 1, 2013, Kirby paid interest and recorded amortization on all of the bonds, and purchased $1,800,000 of the bonds at the call price. Assume that a reversing entry was made on January 1, 2013.

Answer 1

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Date	Account	Debit	Credit
Jun 1	Cash	$   2,938,200
	Discounts on Bond Payable (Plug in)	$       121,800
	Bond Payable		$   3,000,000
	Interest Expense ($3,000,000*6%*4/12)		$         60,000
	(To record issuance of bond)
Aug 1	Interest Expense	$         92,082
	Discount on Bond Payable ($121,800/19.5*2/6)		$           2,082
	Cash ($3,000,000*6%*6/12)		$         90,000
	(To record interest expense)
Feb 1	Interest Expense	$         94,722
	Discount on Bond Payable ($121,800/19.5)		$           4,722
	Cash ($3,000,000*6%*6/12)		$         90,000
	(To record interest expense)
Feb 1	Bond Payable	$   1,800,000
	Discount on Bond Payable (Working below)	$         68,997
	Gain on redemption of Bond		$         32,997
	Cash ($1,800,000*1.02)		$   1,836,000
	(To record bond called)
	Discount on Bond		$       121,800
	Less: Amortization
	Aug 1		$          -2,082
	Feb 1		$          -4,722
	Balance for 3 Million Bond Payable		$       114,996
	Value for 1.8 Million Bond		$         68,997
	$114,996/3*1.8