Question

on April 1 2018, company sold 10,000 bonds ($1,000 face value) at 11% semi-annually. they are due April 1 2028.

proceeds from the bonds were 9,156,946 and their coupon dates are april 1 and october 1

on april 1 2020 , the company bough back 6,000 bonds for 5,331,000 cash.

- prepare journal entries for the bonds from sale (april 1, 2018 to the end of year 2020 (12/31/20)

- what are the 12/31/20 balances in the related bonds, discount, and interest payable (from T accounts)

- what amounts related to the bonds will appear in the income statement for 2020 and how will they be reported/classified?

Answer 1

1) Journal Entries:
Date	Accounts Title	Debit $	Credit $
4/1/2018	Cash	9156946
	Discount on Bond issue	843054
	Bonds Payable		10000000
	(being issue of bond)
10/1/2018	Interest exp	592152.7
	Cash		550000
	Discount on Bond issue		42152.7	(843054/20)
	(being payment of interest)
12/31/2018	Interest exp	296076.35
	Interest payable		275000
	Discount on Bond issue		21076.35
	(being raising interest payable)
4/1/2019	Interest exp	296076.35
	Interest payable	275000
	Cash		550000
	Interest payable		21076.35
	(being payment of interest)
10/1/2019	Interest exp	592152.7
	Cash		550000
	Interest payable		42152.7
	(being payment of interest)
12/31/2019	Interest exp	296076.35
	Interest payable		275000
	Discount on Bond issue		21076.35
	(being raising interest payable)
4/1/2020	Interest exp	296076.35
	Interest payable	275000
	Cash		550000
	Discount on Bond issue		21076.35
	(being payment of interest)
4/1/2020	Bonds Payable	6000000
	Cash		5331000
	Discount on Bond issue		404665.9	(42152.7*6/10*16)
	Income on bayback bonds		264334.1
	(being buyback of 6000 bonds)
10/1/2020	Interest exp	236861.08		(592152.7*0.4)
	Cash		220000	(550000*0.4)
	Discount on Bond issue		16861.08	(42152.7*0.4)
	(being payment of interest)
12/31/2020	Interest exp	118430.54
	Interest payable		110000
	Discount on Bond issue		8430.54
	(being raising interest payable)
Balances in:
Bonds Payable	4000000
Discount on Bond issue	16861.08*(20-5.5)=244485.70
Interest payable	110000
Presentation of balances:
Income Statement:
Interest expenses	651367.97 (expenses)
Income on bayback bonds	264334.1 (Income)
Balance Sheet:
Assets:
Discount on Bond issue	244485.7
Liabilities:
Interest payable	110000 (current liabilities)
Bonds Payable	4000000