Question

On July 1, 2018, Kirby, Inc. issued $3,000,000, 6%, 5-year bonds at a price of 98. Interest is payable semiannually on January 1 and July 1. The bonds are callable at 102. Kirby uses straight-line amortization. On January 1, 2020, Kirby paid interest and recorded amortization on all of the bonds, and purchased the entire issue at the call price. Prepare journal entries to record: The issue of the bonds on July 1, 2018. The payment of interest and amortization of any discount or premium on January 1, 2019, July 1, 2019, and January 1, 2020 (ignore accrual entries). The repurchase of the bonds on January 1, 2020.

Answer 1

Semi annual cash interest = 3000,000*6%*6/12 =	90,000
Discount amortized:
Par value of bonds				30,00,000
Issue price of bonds	(3000,000*98%)		2940000
Total Discount				60,000
Divide: Number of periods			10
Discount amortized each period			6000
Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
01.07.18	Cash account			29,40,000
	Discount on bonds payable		60,000
	Bonds payable				30,00,000
	(for issuance of bonds)
01.01.19	Interest expenses			96,000
	Cash account				90,000
	Discount on bonds payable			6,000
	(for interest expense incurred)
01.07.19	Interest expenses			96,000
	Cash account				90,000
	Discount on bonds payable			6,000
	(for interest expense incurred)
01.01.20	Bonds payable			30,00,000
	Loss on redemption of bonds		1,02,000
	Discount on bonds payable (60000-18000)	42000
	Cash account (3000,000*102%)		30,60,000
	(for bonds issued)