Question

Entries for bonds payable and installment note transactions

Instructions

Chart of Accounts

Journal

Final Questions

X

Instructions

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Year 1
July	1	Issued $71,100,000 of 20-year, 12% callable bonds dated July 1, Year 1, at a market (effective) rate of 14%, receiving cash of $61,621,133. Interest is payable semiannually on December 31 and June 30.
Oct.	1	Borrowed $250,000 by issuing a six-year, 5% installment note to Nicks Bank. The note requires annual payments of $49,254, with the first payment occurring on September 30, Year 2.
Dec.	31	Accrued $3,125 of interest on the installment note. The interest is payable on the date of the next installment note payment.
	31	Paid the semiannual interest on the bonds. The bond discount amortization of $236,972 is combined with the semiannual interest payment.
Year 2
June	30	Paid the semiannual interest on the bonds. The bond discount amortization of $236,972 is combined with the semiannual interest payment.
Sept.	30	Paid the annual payment on the note, which consisted of interest of $12,500 and principal of $36,754.
Dec.	31	Accrued $2,666 of interest on the installment note. The interest is payable on the date of the next installment note payment.
	31	Paid the semiannual interest on the bonds. The bond discount amortization of $236,972 is combined with the semiannual interest payment.
Year 3
June	30	Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $8,530,979 after payment of interest and amortization of discount have been recorded. Record the redemption only.
Sept.	30	Paid the second annual payment on the note, which consisted of interest of $10,662 and principal of $38,592.

Required:

1.	Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles.
2.	Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.
3.	Determine the carrying amount of the bonds as of December 31, Year 2.

CHART OF ACCOUNTS
Winklevoss Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 191 Land 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary	REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 521 Sales Salaries Expense 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 541 Bad Debt Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds

Answer 1

			in $
Date	Accounts Title	Dr	CR
Year 1	Cash	$61621133
Jul-01	Discount on Bonds payable	9478867
	Bonds Payable		71100000
	(beingbonds issued at discount)
Oct-01	Cash	250000
	Notes payable		250000
Dec-31	Interest expenses	3125
	Interest payable		3125
	(being interest on note accured)
Dec-31	Interest expenses	4502972
	Cash (71100000*6%)		4266000
	Discount on Bonds payable		236972
	(being bonds interest paid)
Year 2
30-Jun	Interest expenses	4502972
	Cash (71100000*6%)		4266000
	Discount on Bonds payable		236972
	(being bonds interest paid)
Sep-30	Notes payable	36754
	Interest expenses (12500-3125)	9375
	Interest payable	3125
	Cash		49254
Dec-31	Interest expenses	2666
	Interest payable		2666
	(being interest on note accured)
Dec-31	Interest expenses	4502972
	Cash (71100000*6%)		4266000
	Discount on Bonds payable		236972
	(being bonds interest paid)
Year 3	Bonds Payable	71100000
	Loss on redemption of Bonds Payable	7108979
	Discount on Bonds payable		8530979
	Cash (71100000/100*98)		69678000
Sep-30	Notes payable	38592
	Interest expenses (10662-2666)	7996
	Interest payable	2666
	Cash		49254
	ans 2
		year 1
	Interest expenses	4506097
	(3125+4502972)
		year 2
	Interest expenses	9017985
	(4502972*2)+9375+2666
	ans 3
	carrying amount
	bonds payable	71100000
	Less: Discount on Bonds payable
	9478867-(236792*3)	8767951
	carrying amount	62332049
	If any doubt please comment