Question

Glen Avon Inc. specializes in the production of telecommunication satellites. The company has

a 6-month fiscal end on December 31 and June 30. In 2004 the company decides to expand their

operations and finances it by issuing 4,000 bonds at a 14% coupon rate (annual). The bonds pay

interest on October 31 and April 30, and are due on April 30, 2019.

a. (3 points) Assuming the bonds are issued on April 30, 2004 at 104, record the journal

entry(ies) for the issue.

b. (5 points) Record the proper adjusting entry(ies) for the 6-month fiscal end on June 30, 2004.

c. (4 points) Record the interest payment on October 31, 2014.

d. (8 points) On November 30, 2014, the company purchases 90 percent of the bonds back at

110 plus accrued interest. Record the proper journal entry(ies) for the repurchase.

On November 30,2014(D) What amount should be debited for premium on bonds payable when you are repurchasing the bonds to take the premium account off of the books?

Answer 1

	General Journal	Dr	Cr
Ans a	Cash (4000*104)	4160000
April 30 2014	Bonds Payable (4000*1000)		4000000
	Premium on Bonds Payable (4000*40)		160000
	(being bonds issued at premium)
ans b
June 30 2014	Interest expenses (	91556
	Premium on Bonds Payable(533*2/6)	1778
	Interest payable (4000000*14%*2/12)		93333
(using straight line method of amortization of premium)
	No of period=15*2=30
	So amortization for every six months
	160000/30	5333
ans c	Interest payable	93333
Oct 31 2014	Interest expenses	183111
	Premium on Bonds Payable(5333*4/6)	3555
	Cash (4000000*14%*6/12)		280000
ans d
30-Nov	Interest expenses (	45778
	Premium on Bonds Payable(5333*1/6)	889
	Interest payable (4000000*14%*21/12)		46667
	Bonds Payable (4000*1000*90%)	3600000
	Premium on Bonds Payable	138400
	Interest payable	46667
	GAin on redemptin of bonds (bal fig)		138400
	Cash (3600*110)+4667		3646667
	working
	Premium on Bonds Payable
	160000*90%	144000
	Premium amortized till Nov 30	5600
	(5333*90%)+(5333*1/6*90%)	138400
ans e	Premium on Bonds Payable	138400