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

The journal entries will be booked as follows:

Date	Account Description	Debit($)	Credit($)
Jan 1, 2021	Cash	12,25,000
	Discount on bonds payable	75,000
	Bonds payable		13,00,000
Dec 31, 2021	Interest expense	1,20,750
	Discount on bonds payable		3,750
	Interest payable		1,17,000
Jan 1, 2022	Interest payable	1,17,000
	Cash		1,17,000
Jan 1 , 2022	Bonds payable	13,00,000
	Loss on redemption	45,250
	Cash		12,74,000
	Discount on bonds payable		71,250

Notes

FV of bonds = 1300000

Cash received from sale of bonds = 1225000

Hence, discount on bonds = $75000

Discount to be written off per year = 75000/20 = $3750

Interest Payable = 1300000*9% = $117000

Interest expense = 117000+3750 = $120750

Unamortized discount on Jan 1 2022 = 3750*19 = $71250

Cash paid on redemption = 1300000*.98 = $1274000

Loss on redemption = 1300000-1274000-71250 = $45250

Please comment in case of any issue and I will be happy to help.