Question

FLA a manufacturer of parts for the air craft industry , sells $ 3,000,000 of six year,6% bonds priced to yield 7.2%. the bonds are dated July 1 , 2020 but due to some regulatory hurdles are not issued until December 1, 2020. interest is payable annually on June 30 each year . FLA can call the bonds on July 1 ,2024 , at 102. the bonds sell for $2,838,944 plus accrued interest. FLA sells shares to the public for the first time in early 2023 . they use part of the LPO(initial public offering) proceeds to buy back $1,000,000(face value) of the bonds in the open market on July 1,2023. FLA pays a total of $950,000 to reacquire the bonds and retires them. On July 1 2024, FLA calls the remaining bonds and retires them. The company's year -end is June 30.

a) Prepare a bond amortization spreadsheet using an appropriate format. Include the partial redemption of bonds on July 1 , 2023 ?

b) Prepare journal enteries to record:

1. The issuance of the bonds on December 1, 2020 , assuming that FLA adopted a policy of crediting interest payable for the accrued interest on the date of sale;

2. Payment of interest and related amortization on June 30 ,2021;

3. Payment of interest and related amortization on June 30 ,2023;

4. Repurchase of the bonds on July 1,2023;

5. Payment of interest and related amortization on June 30 ,2024;

6. Repurchase of the bonds on July 1, 2024.

Answer 1

a	Bond Amortization Table
Year	Interest expense @ 6% annually	Interest @ 7.2%	Amortization of Discount	Balance of Discount on Bonds Payable	Bonds Payable	Carrying Value of Bonds Payable
12/1/2020				$161,056	$3,000,000	$2,838,944
6/30/2021	$180,000	$204,403.97	$24,403.97	$136,652.03	$3,000,000	$2,863,348
6/30/2022	$180,000	$206,161.05	$26,161.05	$110,490.98	$3,000,000	$2,889,509
6/30/2023	$180,000	$208,044.65	$28,044.65	$82,446.33	$3,000,000	$2,917,554
7/1/2023					$2,000,000	$1,945,036
6/30/2024	$120,000	$140,042.58	$20,042.58	$62,403.75	$2,000,000	$1,937,596
6/30/2025	$120,000	$139,506.93	$19,506.93	$42,896.82	$2,000,000	$1,957,103
6/30/2026	$120,000	$140,911.43	$20,911.43	$21,985.39	$2,000,000	$1,978,015
6/30/2027	$120,000	$142,417.05	$21,985.39	$0.00	$2,000,000	$2,000,000
b	Journal Entries
1	The issuance of bonds on December 2020
12/1/2020	Cash	$2,928,944
	Discount on Bonds payable	$161,056
	Bonds Payable		$3,000,000
	Interest payable		$90,000
	(To record issuance of bond with accrued interest)
2	Payment of Interest and related amortization on June 30, 2021
6/30/2021	Interest Expense	$90,000
	Interest payable	$90,000
	Discount on Bonds Payable		$24,404
	Cash		$155,596
3	Payment of Interest and related amortization on June 30, 2023
6/30/2023	Interest Expense	$180,000
	Discount on Bonds Payable		$28,045
	Cash		$151,955
4	Repurchase of Bonds on July 1, 2023
7/1/2023	Bonds Payable	$1,000,000
	Loss on Retirement of bonds	$27,482
	Discount on bonds payable		$27,482
	Cash		$1,000,000
5	Payment of Interest and related amortization on June 30, 2024
6/30/2024	Interest Expense	$180,000
	Discount on Bonds Payable		$20,043
	Cash		$159,957
6	Repurchase of Bonds on July 1, 2024
7/1/2024	Bonds Payable	$2,000,000
	Loss on retirement of bonds	$100,404
	Discount on bonds payable		$60,404
	Cash (20000 x $102)		$2,040,000