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In: Accounting
On September 30, Jose’s Jalapenos Inc., issued $1,000,000 of 10-year 9% bonds sated September 30, for...
On September 30, Jose’s Jalapenos Inc., issued $1,000,000 of 10-year 9% bonds sated September 30, for $1,067,950 an effective (market) rate of 8%. Interest is payable semi-annually on October 1 and April 1. The bonds were purchased by Juan’s Junk and Basura Inc. Present the entries to record the following transactions for the current year on BOTH sets of books: (Issuing Corporation and Investor) a) Issuance of bonds b) Accrual of interest and amortization for the period ended December 31. Use the effective interest method for the amortization not the straight-line method. c) Redemption of the bonds on January 1 at 102. PLEASE ANSWER BOTH SETS OF BOOKS. INCLUDING THE INVESTORS BOOKS
Solutions
Expert Solution
| (a) | Date | General Journal | Debit | Credit | ||
| Sep 30 | Cash | 1,067,950 | ||||
| Bonds payable | 1,000,000 | |||||
| Premium on bonds payable | 67,950 | |||||
| (b) | ||||||
| Payment Date | Cash Payment | Interest Exp. | Amortization of bond premium | Carrying Value | ||
| Sep 30, year | 1,067,950 | |||||
| April 1, year 1 | 45,000 | 42,718 | 2,282 | 1,065,668 | ||
| Oct 1, year 1 | 45,000 | 42,627 | 2,373 | 1,063,295 | ||
| Dec 31 | Interest Expense | 21,359 | (1,067,950 x 8% x 1/2 x 3/6) | |||
| Premium on bonds payable | 1,141 | |||||
| Interest Payable | 22,500 | (1,000,000 x 9% x 1/2 x 3/6) | ||||
| (c) | Jan 1 | Bonds Payable | 1,000,000 | |||
| Premium on bonds payable | 66,809 | (67,950 - 1,141) | ||||
| Cash | 1,020,000 | (1,000,000 x 102/100) | ||||
| Gain on redemption | 46,809 |
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