Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of...

Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of Pitts Co.:

March 1

Issued $2,000,000 face value Pitts Co. second mortgage, 8% bonds for $2,180,400, including accrued interest. Interest is payable semiannually on December 1 and

June 1 with the bonds maturing 10 years from this past December 1. The bonds are callable at 102.

June 1

Paid semiannual interest on Pitts Co. bonds. (Use straight-line amortization of any premium or discount.)

December 1

Paid semiannual interest on Pitts Co. bonds and purchased $1,000,000 face value bonds at the call price in accordance with the provisions of the bond indenture.

Solutions

Expert Solution

Calculation of Unamortized life of bond on the date of Bond issuance:
Life of Bond = 10 years or 120 months
Unamortized life of bonds = 120 months – 3 months = 117 months
Calculation of Unamortized Premium on the date of redemption of Bonds:
Unamortized premium on Bonds payable = $140,400 - $3,600 - $7,200
Unamortized premium on Bonds payable = $129,600

Unamortized premium on Bonds payable on Bonds value of $1,000,000 = $129,600 * 1/ 2
Unamortized premium on Bonds payable on Bonds value of $1,000,000 = $64,800

ekkarill92 answered 1 year ago

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