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Acme, Inc. issued $100,000 of its 7% five-year bonds on January 1, 2011, at 101. Interest...

Acme, Inc. issued $100,000 of its 7% five-year bonds on January 1, 2011, at 101. Interest is paid on January 1 and July 1. The bonds are callable at 105 plus accrued

interest and straight-line amortization is used. The bonds are recalled on April 1, 2013.

Prepare the journal entry to accrue the necessary amount of interest for the April 1, 2013 retirement:

Prepare the journal entry to record the April 1, 2013 retirement:

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Answer #1

a) Journal entry

Date account and explanation Debit Credit
Apr 1 Interest expense 1700
Premium on bonds payable (1000/5)*3/12 50
Interest payable (100000*7%*3/12) 1750
(to record accrued interest)

b) Journal entry

date account and explanation Debit Credit
Apr 1 Bonds payable 100000
Interest payable 1750
Premium on bonds payable (1000*33/60 550
Loss on retirement 4450
cash (100000*1.05+1750) 106750
(To record retirement)
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