Question

Monkey Company sells $400,000 of 12% bonds on June 1, 2019. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2023. The bonds yield 10%. On October 1, 2020, Monkey Company buys back $120,000 worth of bonds for $126,000 (hint: don’t forget how the carrying value of the bond changes from 6/1 to 10/1 in determining a potential gain/loss). The company uses the effective interest method of amortizing applicable premiums and discounts.

Required:

1. Prepare the journal entries that would be required on each of the following dates.
   1. June 1, 2019
   2. December 1, 2019
   3. December 31, 2019
   4. June 1, 2020
   5. October 1, 2020
   6. December 1, 2020\

Can you also provide an amortization schedule for this?

Answer 1

Ans
a. June 1, 2019				Debit	Credit
		Bank A/c		400000
		To 12% Bond A/c			400000
		(Being bond issued for cash)
b. December 1, 2019
				Debit	Credit
		Interest on Bond		24000
		To Bank A/c			24000
		(Being 12% interest paid for six months)
c. December 31, 2019
d. June 1, 2020
				Debit	Credit
		Interest on Bond		24000
		To Bank A/c			24000
		(Being 12% interest paid for six months)
e. October 1, 2020
				Debit	Credit
		12% Bond A/c		120000
		Premium paid on buy back a/c		6000
		To Bank A/c			126000
		(Being 120000 worth bond buy back @premium of 6000)
f. December 1, 2020
				Debit	Credit
		Interest on Bond (12% for 4 month)		16000
		Interest on Bond (12% for 2 month)		5600
		To Bank A/c			21600
		(Being 12% interest paid for six months)