Question

Cupola Fan Corporation issued 12%, $560,000, 10-year bonds for $529,000 on June 30, 2021. Debt issue costs were $3,100. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for $539,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. Required: 1. to 4. Prepare the journal entries to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2021 and June 30, 2022 and call of the bonds according to IFRS. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 3 4 Record the issuance of the bonds. Note: Enter debits before credits. Date General Journal Debit Credit June 30, 2021 Record entry Clear entry View general journal

Answer 1

Solution

Cupola Fan Corporation

1. Entry to record issuance of bond at June 30, 2021:

Account Titles	Debit	Credit
Cash	$525,900
Debt Issue Costs	$3,100
Discount on bonds payable	$31,000
Bonds Payable		$560,000

b. entries to record the payment of interest on Dec 31, 2021:

b.	Date	Account Titles and Explanation	Ref. No.	Debit	Credit
	31-Dec-21	Interest Expense		$35,150
		Discount on bonds payable			$1,550
		Cash			$33,600
		(To record interest expense (26,500 + debt issue cost of 1,400), amortization of discount on bonds payable and interest payment)
c.	30-Jun-2022	Interest Expense		$35,150
		Discount on bonds payable			$1,550
		Cash			$33,600
		(To record payment of semiannual interest)
	1-July-22	Bonds Payable		$560,000
		Loss on Early Extinguishment		$9,690
		Debt Issue Costs			$2,790
		Discount on bonds payable			$27,900
		Cash			$539,000

Date	Account Titles	Debit	Credit
Dec 31, 2021	Debt issue expense	$155
	Debt issue costs		$155
	(To record amortization of debt issue costs)
June 30,2022	Debt issue expense	$155
	Debt issue costs		$155
	(To record amortization of debt issue costs)

computation of semiannual interest expense and amortization of debt issue costs,

semiannual interest expense = 12% x $560,000 x 6/12 = $33,600

debt issue expense = $3,100/20 periods = $155

discount on bonds payable = $560,000 - $529,000 = $31,000

the discount is amortized over 20 semiannual periods.

So, semiannual amortization of discount on bonds payable = $31,000/20 = $1,550

total interest expense = $33,600 + 1,550 = $35,150

c. debt issue costs and loss on early extinguishment are computed as follows,

debt issue costs = $3,100 x 9/10 = $2,790

discount on bonds payable = 31,000 x 9/10 = $27,900