Question

Entries for Bonds Payable, including bond redemption

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

Year 1
July 1.	Issued $4,630,000 of five-year, 7% callable bonds dated July 1, Year 1, at a market (effective) rate of 8%, receiving cash of $4,442,231. Interest is payable semiannually on December 31 and June 30.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment.
Dec. 31.	Closed the interest expense account.
Year 2
June 30.	Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $18,777 is combined with the semiannual interest payment.
Dec. 31.	Closed the interest expense account.
Year 3
June 30.	Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $112,661 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

Date	Account	Debit	Credit
Year 1
July 1
Dec. 31-Bond
Dec. 31-Closing
Year 2
June 30
Dec. 31-Bond
Dec. 31-Closing
Year 3
June 30

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Answer 1

		Date	Account	Debit	Credit
		Year 1
		1-Jul	Cash	$4,442,231
			Discount on Bonds payable	$187,769		(4630000-4442231)
			Bonds payable		$4,630,000
		Dec. 31-Bond	Interest expense	$180,827		(162050+18777)
			Discount on Bonds Payable		$18,777
			Cash		$       162,050	(4630000*0.07)/2
		Dec. 31-Closing	Income Statement Accounts	$       180,827
			Interest expense		$       180,827
		Year 2
		30-Jun	Interest expense	$180,827
			Discount on Bonds Payable		$18,777
			Cash		$       162,050
		Dec. 31-Bond	Interest expense	$180,827
			Discount on Bonds Payable		$18,777
			Cash		$       162,050
		Dec. 31-Closing	Income Statement Accounts	$361,654		(180827+180827)
			Interest expense		$361,654
		Year 3
		30-Jun	Bonds Payable	$4,630,000
			Discount on Bonds Payable		$112,661
			Loss on Redemption of Bonds	$20,061		(4537400+112661-4630000)
			Cash		$4,537,400	(4630000*0.98)
		2a	Amount of Interest expense in Year1	$180,827
		b	Amount of Interest expense in Year2	$361,654
		3	Carrying Amount of Bonds as on June 30 Year3	$4,517,339	(4630000-112661)
			Carrying amount of Bonds as on December 31 Year2	$4,498,562	(4517339-18777)