Question

On April 1, 2017, Nash Company sold 32,400 of its 11%, 15-year, $1,000 face value bonds at 98. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2018, Nash took advantage of favorable prices of its stock to extinguish 4,200 of the bonds by issuing 138,600 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $31 per share on March 1, 2018.

Prepare the journal entries needed on the books of Nash Company to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a)		April 1, 2017: issuance of the bonds.
(b)		October 1, 2017: payment of semiannual interest.
(c)		December 31, 2017: accrual of interest expense.
(d)		March 1, 2018: extinguishment of 4,200 bonds. (No reversing entries made.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	4/1/17
(b)	10/1/17
(c)	12/31/17
(d)	3/1/18
		(To record payment to retiring bondholders)
	3/1/18
		(To record extinguishment of the bonds)

Answer 1

Journal Entries
No.	Dates	Account Titles and Explanations	Debit	Credit
a.	01-Apr-17	Bank A/c                                         Dr.	31752000
		(32400 X 1000 X 98% )
		Discount on Issue A/c               Dr.	648000
		(32400 X 1000 X 2% )
		To 11%, 5 Years Bond A/c		32400000
		(32400 X 1000)
		(Being 32400 11% 5 Years Bonds having par value $1000 issued at 98)
b.	01-Oct-17	Interest on Bond A/c                 Dr.	1782000
		(32400 X 1000 X 11% X 6/12)
		To Interest Payable A/c		1782000
		(Being semi annual Interest on Bond Booked)
		Interest Payable A/c                 Dr.	1782000
		To Bank A/c		1782000
		(Being semi annual Interest on Bond Paid)
c.	31-Dec-17	Interest on Bond A/c                 Dr.	891000
		(32400 X 1000 X 11% X 3/12)
		To Accrued Interest Payable A/c		891000
		Profit and Loss A/c                     Dr.	97200
		To Discount on Issue A/c		97200
		(648000 X 9/60)
		(Being discount on issue amortised for 9 months)
d.	01-Mar-18	11%, 5 Years Bond A/c               Dr.	4200000
		(4200 X 1000)
		Premium on Redemtion A/c	96600
		To Bond Holder A/c		4296600
		(Being 4200 Bonds redeemed)
		Bond Holders A/c                       Dr,
		To Common Stcok A/c		1386000
		(138600 X 10)
		To Security Premium A/c		2910600
		(138600 X 21)
		(Being Bond holder are paid 138600 of common stock)
		Security Premium A/c             Dr.	96600
		To Premium on redemption A/c		96600
		(Being Premium on redemption adjusted against Security Premium Balance)