Question

Entries for Bonds Payable, including bond redemption

*Please find Year 3 - Loss of redemption on bonds and discount on bonds payable*

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	Cash
	Discount on bonds payable
	Bonds payable
Dec. 31-Bond	Interest expense
	Discount on bonds payable
	Cash
Dec. 31-Closing	Income summary
	Interest expense
Year 2
June 30	Interest expense
	Discount on bonds payable
	Cash
Dec. 31-Bond	Interest expense
	Discount on bonds payable
	Cash
Dec. 31-Closing	Income summary
	Interest expense
Year 3
June 30	Bonds payable
	Loss on redemption of bonds
	Discount on bonds payable
	Cash

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

Part 1 --- Journal Entries

Date	Account	Debit	Credit
Year 1
1-Jul	Cash	$4,442,231
	Discount on bonds payable	$187,769
	Bonds payable		$4,630,000
Dec. 31-Bond	Interest expense (bal fig)	$180,827
	Discount on bonds payable		$18,777
	Cash (Face Value 4630,000*Coupon Rate 7%*1/2)		$162,050
Dec. 31-Closing	Income summary	$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 summary	$361,654
	Interest expense		$361,654
Year 3
30-Jun	Bonds payable	$4,630,000
	Loss on redemption of bonds (bal fig)	$20,061
	Discount on bonds payable		$112,661
	Cash (4630,000*98%)		$4,537,400

Part 2---

Interest Expense Year 1 = $180,827

Interest Expense Year 2 = $361,654

Part 3 --- Carrying Amount of the bonds as of Dec 31, Year 2 = Face Value of the Bonds 4,630,000 - (Total Bond Discount - Amortization of Bond Discount)

= 4,630,000 - (187,769 - 18,777 - 18,777 - 18,777)

= 4,630,000 - 131,438

= $4,498,562