Question

On March 1, 2017, Wildhorse Company sold 24,100 of its 9%, 20-year, $1,000 face value bonds at 97. Interest payment dates are March 1 and September 1, and the company uses the straight-line method of bond discount amortization. On February 1, 2018, Wildhorse took advantage of favorable prices of its stock to extinguish 2,770 of the bonds by issuing 151,200 shares of its $1 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $19.75 per share on February 1, 2018.

Prepare the journal entries needed on the books of Wildhorse Company to record the following. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 38,548.)

(a)		March 1, 2017: issuance of the bonds.
(b)		September 1, 2017: payment of semiannual interest.
(c)		December 31, 2017: accrual of interest expense.
(d)		February 1, 2018: extinguishment of 2,770 bonds. (No reversing entries made.)

Answer 1

Debit Credit Wildhorse Company JOURNAL Date Account / Explaination 2014 Mar-01 Cash Discount on Issue of bonds Bonds Payable (To record issue of Bonds payable on discount) $2,33,77,000 $7,23,000 = 24,100 x $1,000 x 97% = 24,100 x $1,000 x 3% = 24,100 x $1,000 $2,41,00,000 $11,02,575 Sep-01 Interest Expense Cash Discount on Issue of bonds (To record payment of first semi-annual payment) $10,84,500 $18,075 = $24,100,000 x 9% x 6/12 = $723,000/ (20 x 2) $7,32,038 Dec. 31 Interest Expense Interest payable Discount on Issue of bonds (To record accrual of interest for 3 months Oct-Dec. 2014) $7,23,000 $9,038 = $24,100,000 x 9% x 4/12 = $723,000/ (20 x2x2) Face value of Bonds redeemed Interest for the period Sept - Dec Interest for the period Jan - Feb Discount on bonds - amortized $27,70,000 2770*1000 $83,100 2770000 x 9% x 4/12 $41,550 2770000 x 9% x 2/12 $693 2770000 x 3%/ ( 20 x 6) $83,100 $42,243 2018 Feb-01 Interest Payable Interest Expense Cash Discount on Issue of bonds (To record payment of Interest due on redemption of bonds) $1,24,650 $693 $27,70,000 $2,94,222 Face value of Bonds redeemed Total discount on issue Less: Discount amortized $78,022 Unamortized discount $1,51,200 151200 x 1 $28,35,000|151200 x 18.75 Book Value of Bonds redeemed $27,70,000 $83,100 2770000 x 3% 5078 83100 x 11/180 $78,022 Feb-01 Bonds Payable Loss on redemption of Bonds Discount on Issue of bonds Common Stock Paid-in-capital in excess of par (To record issue of Common stock for redemption of Bonds $26,91,978 Issue price of shares issued Loss on redemption $29,86,200 $2,94,222