Question

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: 20Y1 July 1 Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 20Y1, at a market (effective) rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30. Dec. 31 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. 2012 June 30 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. Dec. 31 Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. 20Y3 June 30 Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)

Answer 1

Required 1 ;
Date	General Journal	Debit	Credit
20Y1	Cash {$74,000,000 - $63,532,267 }	$ 10,467,733
Jul-01	Discount on bonds payable	$ 63,532,267
	Bonds payable		$ 74,000,000
	(to record issued 74,000,000 bonds of 20 year
	11% callable bonds )
Dec-31	Interest expense ($261,693+$4,070,000}	$ 4,331,693
	Discount on Bond		$ 261,693
	Cash {$74,000,000*11 %* 6/12 }		$ 4,070,000
	(To record interest expenses for 6 months )
20Y2
Jun-30	Interest expense ($261,693+$4,070,000}	$ 4,331,693
	Discount on Bond		$ 261,693
	Cash {$74,000,000*11 %* 6/12 }		$ 4,070,000
	(To record interest expenses for 6 months )
Dec-31	Interest expense ($261,693+$4,070,000}	$ 4,331,693
	Discount on Bond		$ 261,693
	Cash {$74,000,000*11 %* 6/12 }		$ 4,070,000
	(To record interest expenses for 6 months )
20Y3
Jun-30	Bonds payable	$ 74,000,000
	Loss on redemption	$ 7,940,961
	Discount on bonds payable		$ 9,420,961
	Cash ($74,000,000 * 98 % )		$ 72,520,000
	( to record redemption on bonds @98 on $74,000,000)

Required 2 :
Amount of the interest expense in
A) 20Y1 :
interest paid on 11 % callable bonds for 6 months	$ 4,070,000
{$74,000,000*11 %* 6/12 }
Add:        Discount on Bond For 6 months	$ 261,693
interest expenses in 20 Y1	$ 4,331,693
B) 20Y2 :
interest paid on 11 % callable bonds for 1 year	$ 8,140,000
{$74,000,000*11 % }
Add:        Discount on Bond For 1 year ($261,693*2)	$ 523,386
interest expenses in 20Y2	$ 8,663,386

Required 3 :
Carrying amount of the bonds as of December 31,20Y2 :
Face value of bonds		$ 74,000,000
less:
Original discount on payable (see in jul 1 20Y1 transaction)	$ 63,532,267
less: Discount on bonds till 20Y2 ($ 261,693+$ 523,386)	($785,079 )	($62,747,188)
So, Carrying amount of the bonds as of December 31,20Y2		$ 11,252,812