Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. (a)...

Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. (a) On April 1, 2016, Quirk issued $2,000,000, 9% bonds for $2,151,472 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2026. (b) On July 1, 2018 Quirk retired $600,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.

Expert Solution

S.NO	Account Titles and Explanation	Debit	Credit
(a)	Cash	$ 21,51,472
	Bonds Payable		$ 20,00,000
	Interest Expense ($20,00,000 X 9% X 3/12)		$ 45,000
	Premium on bonds payable (Bal. Fig.)		$ 1,06,472

	Note: Interest for 3 months is taken from Jan to March

(b)	Interest Expense (Bal. Fig.)	$ 25,362
	Premium on bonds payable [$1,06,472 X ($6,00,000/$20,00,000) X (6/117)]	$ 1,638
	Cash ($6,00,000 X 9% X 6/12)		$ 27,000

	Note: From April 1, 2016 to January 1,2026 = 117 months ; From April 2018 to July 2018 = 6 m months

	Bonds Payable	$ 6,00,000
	Premium on bonds payable [$1,06,472 X ($6,00,000/$20,00,000) X (90/117)]	$ 24,570
	Cash ($6,00,000 X 1.02)		$ 6,12,000
	Gain on redemption of bonds (Bal. Fig.)		$ 12,570

	Note: From July 1, 2018 to January 1,2026 = 90 months

ekkarill92 answered 2 years ago

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