Question

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

Year 1
July	1	Issued $32,300,000 of 20-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 11%, receiving cash of $27,116,993. Interest is payable semiannually on December 31 and June 30.
Dec.	31	Paid the semiannual interest on the bonds. The bond discount amortization of $129,575 is combined with the semiannual interest payment.
	31	Closed the interest expense account.
Year 2
June	30	Paid the semiannual interest on the bonds. The bond discount amortization of $129,575 is combined with the semiannual interest payment.
Dec.	31	Paid the semiannual interest on the bonds. The bond discount amortization of $129,575 is combined with the semiannual interest payment.
	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 $4,664,707 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) CHART OF ACCOUNTS Winklevoss Inc. General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable 122 Allowance for Doubtful Accounts 126 Interest Receivable 127 Notes Receivable 131 Merchandise Inventory 141 Office Supplies 142 Store Supplies 151 Prepaid Insurance 191 Land 192 Store Equipment 193 Accumulated Depreciation-Store Equipment 194 Office Equipment 195 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 221 Salaries Payable 231 Sales Tax Payable 232 Interest Payable 241 Notes Payable 251 Bonds Payable 252 Discount on Bonds Payable 253 Premium on Bonds Payable EQUITY 311 Common Stock 312 Paid-In Capital in Excess of Par-Common Stock 315 Treasury Stock 321 Preferred Stock 322 Paid-In Capital in Excess of Par-Preferred Stock 331 Paid-In Capital from Sale of Treasury Stock 340 Retained Earnings 351 Cash Dividends 352 Stock Dividends 390 Income Summary REVENUE 410 Sales 610 Interest Revenue 611 Gain on Redemption of Bonds EXPENSES 510 Cost of Merchandise Sold 515 Credit Card Expense 516 Cash Short and Over 521 Sales Salaries Expense 522 Office Salaries Expense 531 Advertising Expense 532 Delivery Expense 533 Repairs Expense 534 Selling Expenses 535 Rent Expense 536 Insurance Expense 537 Office Supplies Expense 538 Store Supplies Expense 541 Bad Debt Expense 561 Depreciation Expense-Store Equipment 562 Depreciation Expense-Office Equipment 590 Miscellaneous Expense 710 Interest Expense 711 Loss on Redemption of Bonds

Answer 1

	Workings: 1
		Par Value of the bonds =	$3,23,00,000
		Issue price of the bond=	$2,71,16,993
		Premium to be amortized	$51,83,007
		Coupon rate of interest =	9.00%
		Coupon Amount =	$29,07,000
		Coupon Amount Half yearly =	$14,53,500
	Workings: 2
	Working Notes: for calculation of the interest expenses for December 31, Year 1
		Coupon Amount =	$14,53,500
		Add: Amortized Value	$1,29,575
		Total interest expesnes	$15,83,075
	For issuance of Bonds:
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	July 01, Year 1	Cash	$                 2,71,16,993
		Discount on Bonds Payable	$                     51,83,007
		To Bonds Payable		$             3,23,00,000
		(To Record the issuance of Bonds)
	Interest Expenses Entry for December 31, Year 1
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec 31, Year 1	Interest Expenses	$                     15,83,075
		To Cash		$                 14,53,500
		To Discount on Bonds Payable		$                   1,29,575
		(To Record the payment of interest Expe)
	Closed the Expenses Account
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec 31, Year 1	Income summary	$                     15,83,075
		To Interest Expenses		$                 15,83,075
	Year 2: Interest Expenses for June 30
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	June 30, Year 2	Interest Expenses	$                     15,83,075
		To Cash		$                 14,53,500
		To Discount on Bonds Payable		$                   1,29,575
		(To Record the payment of interest Expe)
	Year 2: Interest Expenses for Dec 31
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec 31, Year 2	Interest Expenses	$                     15,83,075
		To Cash		$                 14,53,500
		To Discount on Bonds Payable		$                   1,29,575
		(To Record the payment of interest Expe)
	Closed the Expenses Account
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	Dec 31, Year 2	Income summary	$                     15,83,075
		To Interest Expenses		$                 15,83,075
	Year 3: Interest Expenses
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	June 30, Year 3	Interest Expenses	$                     15,83,075
		To Cash		$                 14,53,500
		To Discount on Bonds Payable		$                   1,29,575
		(To Record the payment of interest Expe)
	Year 3: Redumption of Bonds
	Journal Entries
	Date	Account Title and explanation	Debit	Credit
	June 30, Year 3	Bonds Payable	$                 3,23,00,000
		Loss on Redumption of Bonds	$                     46,64,707
		To Gain on Redumption of Bonds		$                   6,46,000
		To Cash (98%)		$             3,16,54,000
		To Discount on Bonds Payable		$                 46,64,707