Question

Cupola Fan Corporation issued 10%, $450,000, 10-year bonds for $430,000 on June 30, 2021. Debt issue costs were $2,000. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for $435,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Required: 1. to 4. Prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2021 & June 30, 2022, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

i have provided with two answers, just the entries are consolidated in the first and separated in the second

Alternative 1:

Jun-30	Cash	428000
	Discount and debt issue costs	22000
	Bonds payable		450000
Dec-31	Interest expense	23600
	Discount and debt issue costs		1100
	Cash(540000*5%)		22500
Jun-30	Interest expense	23600
	Discount and debt issue costs		1100
	Cash(540000*5%)		22500
Jul-01	Bonds payable	450000
	Loss on early extinguishment	4800
	Discount and debt issue costs		19800
	Cash		435000

Alternative 2:

Date	General Journal	Debit	Credit
Jun-30	Cash	428000
	Debt issue costs	2000
	Discount on bonds payable(450000-430000)	20000
	Bonds payable		450000
Dec-31	Interest expense	23500
	Discount on bonds payable(20000/20)		1000
	Cash(450000*5%)		22500
Dec-31	Debt issue expense(2000/20)	100
	Debt issue costs		100
Jun-30	Interest expense	23500
	Discount on bonds payable(20000/20)		1000
	Cash(450000*5%)		22500
Jun-30	Debt issue expense	100
	Debt issue costs		100
Jul-01	Bonds payable	450000
	Loss on early extinguishment	4800
	Debt issue costs(2000*9/10)		1800
	Discount on bonds payable(20000*9/10)		18000
	Cash		435000