Question

3. On January 1, 2021 Clayton Co. issued $1,300,000 of 20-year, 9% bonds, for $1,225,000. Interest is payable annually on January 1. The company uses the straight-line method to amortization any bond discount or premium REQUIRED (16 points) Prepare joumal entries to record the following (round to nearest dollar.) Jan 1, 2021 Issuance of the bonds on January 1, 2021 Dec 31, 2021 Recorded accrued interest Jan 1, 2022 Payment of interest Jan 1, 2022 After payment of interest on Jan. 1, 2022 the bonds were retired at 98.

Answer 1

	Discount Amortization per year = $75000/20 =$3750
	Journal Entries		71250
			45250
	Date	Account Title	Debit	Credit
	Jan-21	Cash	$       12,25,000
		Discount On Issue Of Bond Payable	$             75,000
		9%,Bond Payable		$       13,00,000
		( Bond issued at discount)
	Dec-21	Interest On Bond	$          1,20,750
		Interest On Bond Payable		$          1,17,000
		Discount On Bond Payable		$                3,750
		($1300000*9%)
		(Accrual of interest recorded)
	Jan-22	Interest On Bond payable	$          1,17,000
		Cash		$          1,17,000
		(Interest on bond paid)
	Jan-22	9%, Bond Payable	$       13,00,000
		Cash		$       12,74,000
		Discount On Redemption of bond		$             26,000
		(Bond Redemption Recorded)
		Discount = $1300000/100*2)
	Jan-22	Discount On Bond Redemption	$             26,000
		Discount On Bond	$             45,250
		Discount On Bond Payable		$             71,250
		Please See Working Note
	Working Note:
	On Jan 22	Discount On Bond payable Account Balance = $75000- 3750
			=$71250
		On Redemtion Discount Received	25000
		Therefore net balance to be	46250
		transferred income statement
		(Bond Discount)
		($71250-25000)