Question

Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2021. Debt issue costs were $1,500. 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 $395,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.Prepare the journal entries to record the (a) issuance of the bonds, (b)the payment of interest and (c) amortization of debt issue costs on December 31, 2021 & June 30, 2022, and the (d) call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer is not complete.

Answer is not complete.

Answer 1

Preparing Journal Entries:-

Cupola Fan Corporation

General Journal

For the Year 2021 & 2022

Date	Accounts Title and Explanation	Debit	Credit
June 30,2021	Cash	$383,500
	Bonds Payable ($385,000-$1,500)		$383,500
	(To Record the issuance of Bonds)
December 31,2021	Interest Expense	$20,825
	Bonds Payable		$825
	Cash		$20,000
	(To Record the Interest Expense)
June 30,2022	Interest Expense	$20,825
	Bonds Payable		$825
	Cash		$20,000
	(To Record the Interest Expense)
July 1,2022	Bonds Payable	$385,150
	Loss on retirement of Bonds	$9,850
	Cash		$395,000
	(To Record the early retirement of Bonds)

Working Notes:-

1. Calculations for the Amount received on issuance of Bonds:-

Bonds of $400,000 issued for $385,000 , so there is a Discount on issuance of Bonds of $15,000 ($400,000-$385,000). There is also Debt issue cost of $1,500 which is also deducted from $ 385,000. So the amount received from issue of Bonds Payable is $383,500 ($385,000-$1,500).

2. Calculations for Interest Expense which is paid semiannually:-

Interest Expense=($400,000×10%)×6/12

=($400,000×10/100×6/12)

=$20,000

3. Calculations for Amortization of Debt cost:-

Total cost incurred on issuance of Bonds Payable=($15,000+$1,500)

=$16,500

The cost amortize annually=($16,500×10/100)

=$1,650

Amortization Of cost on December 31,2021& June 30,2022:-

Amortization of Cost for 6 months=($1,650×6/12)

=$825

4. Calculations for loss on retirement of Bonds Payable:-

Total amount Payable on Bonds= ($383,500+$825+$825)

=$385,150

Loss on retirement of Bonds=($395,000-$385,150)

=9,850