Question

Pronghorn Ltd. sold $6,790,000 of 8% bonds, which were dated March 1, 2017, on June 1, 2017. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2027, and the bonds were issued to yield 10%. Pronghorn's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2018, Pronghorn bought back $2,790,000 worth of bonds for $2,690,000 plus accrued interest. 1. Prepare the entry for the issuance of the bonds. 2. Prepare the journal entry for the scheduled interest payment on September 1, 2017. 3. Prepare any year-end entry required at February 28, 2018. 4. Prepare the entry required for the redemption of face value $2,790,000 of the bonds on June 1, 2018. These are the list of accounts.

Accumulated Depreciation - Equipment Accumulated Depreciation - Machinery Allowance for Doubtful Accounts Bad Debt Expense Bond Interest Payable Bond Issuance Expense Bonds Payable Buildings Cash Common Shares Contributed Surplus - Conversion Rights Expired Contributed Surplus - Expired Stock Options Cost of Goods Sold Depreciation Expense Equipment FV-NI Investments FV-OCI Investments Gain on Disposal of Equipment Gain on Disposal of Machinery Gain on Redemption of Bonds Gain on Restructuring of Debt Gain on Sale of Investments Income Tax Expense Income Tax Payable Income Tax Receivable Interest Expense Interest Income Interest Payable Interest Receivable Inventory Land Loss on Disposal of Machinery Loss on Redemption of Bonds Loss on Retirement of Bonds Loss on Restructuring of Debt Loss on Sale of Investments Machinery Modification Gain or Loss No Entry Notes Payable Notes Receivable Sales Revenue Unearned Revenue Unrealized Gain or Loss Unrealized Gain or Loss - OCI

Answer 1

Requirement 1:

Date	Account Title and Explanation	Debit	Credit
Jun 1, 2017	Cash	$5,956,611
	Discount on bonds payable	$833,389
	Bonds payable		$6,790,000
	To record bonds issued on June 1, dated March 1

Requirement 2:

Sep 1, 2017	Interest expense	$148,595
	Discount on bonds payable ($25,591 ÷ 2)		$12,795
	Cash ($271,600 ÷ 2)		$135,800
	To record 3-month interest expense

Requirement 3:

Feb 28, 2018	Interest expense	$298,470
	Discount on bonds payable		$26,870
	Interest payable		$271,600
	To record adjusting entry for interest payable

Requirement 4:

June, 1 2018	Bonds payable	$2,790,000
	Loss on redemption of bonds	$220,343
	Discount on bonds payable		$320,343
	Cash		$2,690,000
	To record redemption of bonds

Notes

Discount on bonds payable = $320,343 (($6,790,000 − $6,010,384) × $2,790,000 ÷ $6,790,000)

Compute discount on bond issued as follows:

Particulars	Amount
Maturity value of bonds payable	$6,790,000
Proceeds from sale of bonds	$5,956,611
Discount on bonds issued	$833,389

Compute proceeds from the sale of bonds or present value of bonds payable as follows:

FV	PMT	Rate	NPER	PV
$6,790,000	$271,600	5%	20	$5,943,816

Date	Interest paid	Interest Expense	Bond Discount	Carrying Value
Mar 1, 2017				$5,943,816
Jun 1, 2017	$135,800	$148,595	$12,795	$5,956,611
Sep. 1, 2017	$271,600	$297,191	$25,591	$5,969,407
Mar 1, 2018	$271,600	$298,470	$26,870	$5,996,277
Jun 1, 2018	$135,800	$149,907	$14,107	$6,010,384
Sep 1, 2018	$271,600	$299,814	$28,214	$6,024,491
Mar 1, 2019	$271,600	$301,225	$29,625	$6,054,115
Sep 1, 2019	$271,600	$302,706	$31,106	$6,085,221
Mar 1, 2020	$271,600	$304,261	$32,661	$6,117,882
Sep 1, 2020	$271,600	$305,894	$34,294	$6,152,176
Mar 1, 2021	$271,600	$307,609	$36,009	$6,188,185
Sep 1, 2021	$271,600	$309,409	$37,809	$6,225,994
Mar 1, 2022	$271,600	$311,300	$39,700	$6,265,694
Sep 1, 2022	$271,600	$313,285	$41,685	$6,307,379
Mar 1, 2023	$271,600	$315,369	$43,769	$6,351,148
Sep 1, 2023	$271,600	$317,557	$45,957	$6,397,105
Mar 1, 2024	$271,600	$319,855	$48,255	$6,445,361
Sep 1, 2024	$271,600	$322,268	$50,668	$6,496,029
Mar 1, 2025	$271,600	$324,801	$53,201	$6,549,230
Sep 1, 2025	$271,600	$327,461	$55,861	$6,605,091
Mar 1, 2026	$271,600	$330,255	$58,655	$6,663,746
Sep 1, 2026	$271,600	$333,187	$61,587	$6,725,333
Mar 1, 2027	$271,600	$336,267	$64,667	$6,790,000