Question

3. On January 1, 2021 Clayton Co. issued $1,300,000 of 20-year, 9% bonds, for $1,225,000. Interest is payable annually on January 1. The company uses the straight-line method to amortization any bond discount or premium REQUIRED (16 points) Prepare journal entries to record the following (round to nearest dollar.) Jan 1, 2021 Issuance of the bonds on January 1, 2021 Dec 31, 2021 Recorded accrued interest Jan 1, 2022 Payment of interest Jan 1, 2022 After payment of interest on Jan. 1, 2022 the bonds were retired at 98.

Answer 1

Date	General Journal	Debit	Credit
Jan 1, 2021	Cash	1,225,000
	Discount on bonds payable	75,000
	Bonds payable		1,300,000
Dec 31, 2021	Interest expense	120,750
	Discount on bonds payable		3,750
	Interest payable		117,000
Jan 1, 2022	Interest payable	117,000
	Cash		117,000
Jan 1 , 2022	Bonds payable	1,300,000
	Loss on redemption	45,250
	Cash		1,274,000
	Discount on bonds payable		71,250

Annual interest payment = 1,300,000 x 9%

= $117,000

Discount on bonds payable = Par value of bonds - Issue price of bonds

= 1,300,000-1,225,000

= $75,000

Annual amortization of bond discount = 75,000/20

= $3,750

Unamortized bonds discount on Jan 1, 2022 = 75,000-3,750

= $71,250

Redemption price = 1,300,000 x 98%

= $1,274,000

Carrying value of bonds = Par value of bonds -  Unamortized bonds discount on Jan 1, 2022

= 1,300,000-71,250

= $1,228,750

Loss on bond redemption = Redemption price - Carrying value of bonds

= 1,274,000-1,228,750

= $45,250

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