Question

(Ch. 14) Prepare journal entries to record the following transactions related to long-term bonds of Quirk Co. (a) On April 1, 2016, Quirk issued $3,000,000,9% bonds for $3,151,472 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 $900,000 of the bonds at 103 plus accrued interest. Quirk uses straight-line amortization.

please provide work

Answer 1

Solution:

a) Journal entries

Particulars	Debit ($)	Credit ($)
Cash a/c	3,151,472
To Bonds Payable		3,000,000
To Interest Expense (Accrued Interest From January to March. 3000000*9/100*3/12)		67,500
To Premium on Bonds Payable		83,972

As the Bonds are issued in April accrued interest is from January, 2016 to March, 2016

b)

Bonds Maturity in months = 117 months ( from 1st April,2016 to 1st January, 2026)

Balance of months from retired to Maturity =90 months ( From 1st July, 2018 to 1st January 2026 or December 31, 2025)

Bonds retired on July 2018 is at $900,000

Percentage of Bonds Retired = $900,000 / $3,000,000 = 30%

Particulars	Debit ($)	Credit ($)
Interest Expense (Bal fig)	39,208
Premium on Bonds Payable (from January 2018 to June 2018. $83972*6/117*30%)	1,292
To cash a/c (Interest from January 2018 to June 2018. $900,000*9%*6/12)		40,500

Particulars	Debit ($)	Credit ($)
Bonds Payable	900,000
Premium on Bonds Payable ($83972*90/117*30%)	19,378
Loss on Redemption (Bal fig)	7,622
To Cash a/c ($900000*103%)		927,000

Note : If you have any doubts please comment. Thank you.