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Entries for Bonds Payable. Prepare journal entries to record the following transactions related to long-term bonds...

Entries for Bonds Payable.

Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. (a) On April 1, 2016, Quirk issued $2,000,000, 9% bonds for $2,151,472 including accrued interest. Interest is payable annually on January 1, and the bonds mature on January 1, 2026. (b) On July 1, 2018 Quirk retired $600,000 of the bonds at 102 plus accrued interest. Quirk uses straight-line amortization.

Solutions

Expert Solution

Date Account Titles and Explanation Debit Credit
(a) Apr. 1, 2016 Cash 2151472
Premium on bonds payable 106472
Interest payable ($2000000 x 9% x 3/12) 45000
Bonds payable 2000000
(To record issue of bonds including interest accrued)
(b) Jul. 1, 2018 Interest expense 25403
Premium on bonds payable ($31942 x 1/10 x 6/12)* 1597
Interest payable ($600000 x 9% x 6/12) 27000
(To record interest accrued and amortization of premium)
Jul. 1, 2018 Bonds payable 600000
Interest payable 27000
Premium on bonds payable* 24755
Loss on bond retirement 50245
Cash [($600000 x 102/100) + $90000] 702000
(To record retirement of bonds payable)
* Premium on $600000 bond payable = ($106472 x $600000/$2000000) = $31942
Premium amortized till Jul. 1, 2018 = $31942 x 27/120 = $7187
Balance in premium on bonds payable = $31942 - $7187 = $24755

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