Question

On January 1, 2018, Holidays Unlimited issues 6%, 5-year bonds payable with a face value of $180,000. The bonds are issued at 104 and pay interest on June 30 and December 31.

How much money will Holiday receive from the bond sale?

Is the stated interest rate of 6% higher than the prevailing market interest rate at issue?

Record the accounting entry when the bond is issued: Record the accounting entry on June 30, 2018: (Hint: record interest expense, amortize the discount on B/P, and record cash payment: Cash payment is calculated based on face value and stated rate)

Record the accounting entry on December 31, 2018: What is the carrying amount of the bond as of December 31, 2018?

If the company decides to retire the bonds at December 31, 2018 for $185,000, what is the journal entry for retiring the bond?

Holiday did not retire the bonds at the end of 2018. Holiday pays off the bonds on January 1, 2023. Show the accounting entry: (Hint: at maturity, the company pays off the maturity value)

*please answer the three bolded questions* thank you :)

Answer 1

Required journal entries related to bond issue are as shown below:

Holiday will receive $187,200 from the bond sale as bonds are issued at 104. (180,000*1.04)

Stated interest rate of 6% is lower than the prevailing market interest rate at issue so the bonds are issued at a premium.

Accounting entry when bond is issued and payment on June 30 is:

Year	Particulars	L.F	Debit ($)	Credit ($)
2018
Jan-01	Cash (180,000*1.04)		187,200
	Premium on Bonds payable			7,200
	Bond payable			180,000
	(for bond issued for 5 years)
Jun-30	Interest expense		4,680
	Premium on Bonds payable (7,200/10)		720
	Cash (180,000*6%*6/12)			5,400
	(For interest paid on 6% bonds and amortization of premium)

Accounting entry on December 31, 2018 is

Year	Particulars	L.F	Debit ($)	Credit ($)
Dec-31	Interest expense		4,680
	Premium on Bonds payable (7,200/10)		720
	Cash (180,000*6%*6/12)			5,400
	(For interest paid on 6% bonds and amortization of premium)

What is the carrying amount of the bond as of December 31, 2018 is 187,200-820-720 = $185,760

If company retires bond on Dec 31 then journal entry will be:

Year	Particulars	L.F	Debit ($)	Credit ($)
Dec-31	Bonds Payable		180,000
	Premium on Bonds payable (7,200-720-720)		5,760
	Cash			185,000
	Gain on retirement of bonds			760
	(For bonds matured)

Holiday pays off bonds on January 1, 2023 . Entry to mature will be:

Year	Particulars	L.F	Debit ($)	Credit ($)
Jan-01	Bonds Payable		180,000
	Cash			180,000
	(For Bonds matured)