Question

Chapter 14 Test eBook Show Me How Calculator Print Item 1. PR. 14-04.ALGO Entries for Bonds Payable and Installment Note Transactions The following transactions were completed by Montague Inc., whose fiscal year is the calendar year: Year 1 Issued $7,970,000 of five-year, 8% callable bonds dated July 1, Year 1, at a market (effective) rate of 9%, receiving cash of $7,654,677. July 1. Interest is payable semiannually on December 31 and June 30. Oct. 1. Borrowed $310,000 by issuing a 10-year, 7% installment note to Intexicon Bank. The note requires annual payments of $44,137, with the first payment occurring on September 30, Year 2. Dec. 31. Accrued $5,425 of interest on the installment note. The interest is payable on the date of the next installment note payment. Paid the semiannual interest on the bonds. The bond discount amortization of $31,533 is combined with the semiannual interest Dec. 31. payment. Year 2 Paid the semiannual interest on the bonds. The bond discount amortization of $31,533 is combined with the semiannual interest June 30. payment. Sept. 30. Paid the annual payment on the note, which consisted of interest of $21,700 and principal of $22,437. Dec. 31. Accrued $5,032 of interest on the installment note. The interest is payable on the date of the next installment note payment. Paid the semiannual interest on the bonds. The bond discount amortization of $31,533 is combined with the semiannual interest Dec. 31. payment. Year 3 Recorded the redemntion of the honds which were called at og The halance in the hond discount account is $189 193 after navment of Check My Work 1 more Check My Work uses remaining. Droarece.111 items

Answer 1

Credit Date July 1 Debit $76,54,677 $3,15,323 $79,70,000 Oct 1 $3,10,000 $3,10,000 Dec 31 $5,425 $5,425 1 Dec 31 $3,50,333 Account Title Cash Discount on Bond Payable Bond Payable (To record issuance of bond) Cash Note Payable (To record notes payable) Interest Expense Interest Payable (To record accrual of interest expense on Note payable) Interest Expense Discount on Bond Payable Cash (To record payment of bond interest) Interest Expense Discount on Bond Payable Cash (To record payment of bond interest) Interest Expense Interest Payable Notes Payable Cash (To record payment of interest and principle) Interest Expense Interest Payable (To record accrual of interest expense on Note payable) $31,533 $3,18,800 [($7970000 x 8%)/2] June 30 $3,50,333 $31,533 $3,18,800 [($7970000 x 8%)/2] 2 Sept 30 $16,275 $5,425 $22,437 $44,137 2 Dec 31 $5,032 $5,032

2 Dec 31 $3,50,333 Interest Expense Discount on Bond Payable $31,533 $3,18,800 [$7970000 x 8%)/2] Cash 3 June 30 $79,70,000 $29,791 $1,89,191 $78,10,600 [($7970000/100)x98] Bond Payable Loss on redemption of Bond Discount on Bond Payable (Notei) Cash (To record redemption of bond) Interest Expense Interest Payable Notes Payable Cash (To record payment of interest and principle) Sept 30 $15,097 $5,032 $24,008 $44,137 Note i $3,15,323 Discount on Bond Payable Less: Amortisation of Discount on Bond payable Year 1, Dec 31 Year 2, June 30 Year 2, Dec 31 Year 3, June 30 Unamortised amount of Discount on Bond Payable at the time of redemption $31,533 $31,533 $31,533 $31,533 ($1,26,132) $1,89,191 Ans 2 Interest Expense a. Year 1 $3,55,758 b. Year 2 $7,21,973 ($5425+$350333] [$35033+16275+5032+350333] Ans 3 Carrying amount of Bond as of December 31, Year 2 Bond Payable Less: Discount on Bond Payable ($315323-($31533 x 3)] Carrying value of Bond $79,70,000 ($2,20,724) $77,49,276