Question

Problem 6 On January 1, 2014, Irish, Inc. issued 10-year bonds of $500,000 face value at 103. Interest is payable on June 30 and December 31 at 8%. On April 1, 2015, Irish reacquires $100,000 bonds at 99 plus accrued interest. The fiscal period for Irish is the calendar year. The straight-line method is used to amortize any premium or discount. Prepare entries to record: A) the issuance of the bonds and B) the reacquisition and retirement of the bonds.

Answer 1

Styles 2014 Jan1 Cash ($500,000 x103%) Debit Credit Premium on Bonds Payable ($515,000 cash – $500,000 bond) Bonds Payable ($500,000 bond amount) 515,000 15,000 To record issue of bond at a premium. 1 500,000 Jun 30 Bond Interest Expense ($15,000 cash interest - 250 premium amortization) uit 14,250 Premium on Bonds Payable ($15,000 premium/(10-2) interest payments) 750 Cash($500,000 x 8% x 6 months/ 12 months) 15,000 To record period interest payment and premium amortization Dec 31 Bond Interest Expense ($15,000 cash interest - 750 premium amortization) 14,250 Premium on Bonds Payable 750 ($15,000 premium/10* 2) interest payments) Cash($500,000 x 8% x 6 months 12 months) 15,000

R4LIKKUS 2015 Aprill Cash Discount on Bonds Payable 101,000 1,000 Bonds payable 100,000 Bond interest payable ($100,000 x 8% X.(3. 2,000 To record bonds issued at face value plus accrued June 30 Bond Interest Expense ($100,000 x 0.08 x (3/12) +50 Amortiz Bond interest payable Discount on Bonds Payable ($1,000 discount/ (10*2) interest payments 2,000 2,000 4,000 Cash To record bond interest payment and discount amortization

Dec 30 Bond Interest Expense ($100,000 X 0.08. X (6/12) +50 Amortization) Discount on Bonds Payable ($1,000 discount X (1072) interest payments) 4,050 Cash To record bond interest payment and discount amortization 4,000 (Maturity) Bonds Payable 500,000 Cash 500,000 To record paymentof bona at mat Maturity) Bonds Payable 100,000 Cash 150,000 To record payment of bond at matu