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Entries for Bonds Payable, including bond redemption The following transactions were completed by Winklevoss Inc., whose...

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 $6,350,000 of five-year, 7% callable bonds dated July 1, Year 1, at a market (effective) rate of 9%, receiving cash of $5,847,543. Interest is payable semiannually on December 31 and June 30.
Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $50,246 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 $50,246 is combined with the semiannual interest payment.
Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $50,246 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 $301,475 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.
$

Solutions

Expert Solution

date

explanation

debit

credit

1-Jul

cash

5847543

discount on bonds payable

502457

bonds payable

6350000

31-Dec

interest expense

272496

discount on bonds payable

50246

cash

222250

31-Dec

income summary

272496

interest expense

272496

Year 2

1-Jul

interest expense

272496

discount on bonds payable

50246

cash

222250

31-Dec

interest expense

272496

discount on bonds payable

50246

cash

222250

31-Dec

income summary

544992

interest expense

544992

year 3

30-Jun

interest expense

272496

discount on bonds payable

50246

cash

222250

30-Jun

bonds payable

6350000

loss on redemption of bonds

174473

discount on bonds payable

301473

cash

6223000


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