Question

Entries for Bonds Payable, including bond redemption

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

20Y1
July 1.	Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, 20Y1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.
20Y2
June 30.	Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.
20Y3
June 30.	Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank. When required, round amounts to the nearest dollar.

20Y1 July 1	Cash
	Premium on Bonds Payable
	Bonds Payable
Dec. 31	Interest Expense
	Premium on Bonds Payable
	Cash
20Y2 June 30	Interest Expense
	Premium on Bonds Payable
	Cash
Dec. 31	Interest Expense
	Premium on Bonds Payable
	Cash
20Y3 June 30	Bonds Payable
	Premium on Bonds Payable
	Gain on Redemption of Bonds
	Cash

2. Indicate the amount of the interest expense in (a) 20Y1 and (b) 20Y2.

a. 20Y1	$
b. 20Y2	$

3. Determine the carrying amount of the bonds as of December 31, 20Y2.
$

Answer 1

- Solution 2011 Inly 1 l Bash ale by 162817040 Premium on Bond 7817040 55000000 To Bond Decal 2475000 Interest payable 1550CC OD X 7 7 X6/12 To cash 2475000 Dec 31 390852 premium on bond (7817040 40.5 47/10 year] Interest Experse 390852 Dec31 2084148 profit & Loss alc [2475000-390852 Interest Expense 2084148 2018 June 30 L Interest payable 2475000 2475000 To cagh 15500000077% X612) 31 Dec 7475000 Interest payable To cash 2475000 31 Dec 781704 Premium on bond 7817040 X 0.577/10 yey] Interest Expense 781704 31 Dec 4168296 profst & Loss alc to Interest Expense [ 2475000 – 390852] 4168296

Roy3 June 30 Bonds payable (19224x446X0.3] 55000000 6253632 premium on bond 7817040 ~ 390852 - 781704-390852) cash 4603632 56650000 gain on redemption of Bond. { 55000cco X 1003] Int Exp for year I = 2084148 Int Exp for year 2 - 4168296 Initial carrying amount of Bond 62817040 Less! premium amortized in year 1 -390852 Less: premimum amortized in Year 2 - 781704 Carrying amount of Bond at end of year 2 61644 484