Answer :
Date | Accounts Titles and Explanation | Debit | Credit |
April 1.2016 | No Journal entry is required | ||
July 1.2017 | Cash | $906,000 | |
Discount on bonds payable (1000000 - 906000) | $94,000 | ||
Bonds payable | $1,000,000 | ||
(To record issue of bonds for cash $906000 and discount on bonds | |||
Sept 30.2017 | Interest expense (20000+3917) (Working note 1) | $23,917 | |
Discount on bonds payable Working note 2) | $3,917 | ||
Interest payable | $20,000 | ||
(To record interest paid and discount amortized) | |||
Dec 31.2017 | Interest expense (20000+3917) | $23,917 | |
Discount on bonds payable | $3,917 | ||
Interest payable | $20,000 | ||
(To record interest accrued and discount amortized) | |||
Oct.2.2019 | Bounds payable | $1,000,000 | |
Loss on early extinguishment of bonds | $208,750 | ||
Discount on bonds payable Working note 3 | $58,750 | ||
Cash | $1,150,000 | ||
(To record redemption of bonds and discount unamortized) |
Working Note :
1. Interest Expense
(100000*8%)*3/12 =$20,000
2. Discount on bonds payable
94000/(72 months)*3 = $3,917
3. Discount on bonds payable (Unamortized amount )
Discount on bonds payable was amortized for 27 months, (July 1 2017 to Oct 1.2019)
remaining was unamortized
= 94000 -(94000/72)*27
= 94000 -35250
= $58,750
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