Question

On April 1, 2020, Headland Company sold 29,700 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2021, Headland took advantage of favorable prices of its stock to extinguish 5,700 of the bonds by issuing 188,100 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $31 per share on March 1, 2021.

Prepare the journal entries needed on the books of Headland Company to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a)		April 1, 2020: issuance of the bonds.
(b)		October 1, 2020: payment of semiannual interest.
(c)		December 31, 2020: accrual of interest expense.
(d)		March 1, 2021: extinguishment of 5,700 bonds. (No reversing entries made.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	4/1/20
(b)	10/1/20
(c)	12/31/20
(d)	3/1/21
		(To record interest and discount on bonds retired)
	3/1/21
		(To record extinguishment of the bonds)

Answer 1

Answer -

Journal of Headland Company

No.	Date	Account Titles and Explanation	Debit ($)	Credit ($)
(a)	4/1/20	Cash [(29700 bonds * $1000) * 97%] Discount on Bonds Payable [Difference] Bonds Payable [29700 bonds * $1000] (To record issuance of the bonds)	28809000 891000 -	- - 29700000
(b)	10/1/20	Interest Expense [Difference] Discount on Bonds Payable [($891000 / 15 years) * 6/12] Cash [($29700000 * 11%) * 6/12] (To record payment of semiannual interest)	1663200 - -	- 29700 1633500
(c)	12/31/20	Interest Expense [Difference] Discount on Bonds Payable [($891000 / 15 years) * 3/12] Interest Payable [($29700000 * 11%) * 3/12] (To record accrual of interest expense)	831600 - -	- 14850 816750
(d)	3/1/21	Interest Expense [Difference] Interest Payable [$816750 * (5700/29700)] Discount on Bonds Payable [($891000 / 15 years) * 2/12] * 5700/29700] Cash [($29700000 * 11%) * 2/12] (To record interest and discount on bonds retired)	389650 156750 - -	- - 1900 544500
	3/1/21	Bonds Payable [5700 bonds * $1000] Loss on redemption of Bond [Difference] Discount on bond payable [($846450 * 5700/29700) - $1900] Common Stock [188100 shares * $10] Paid-in Capital in Excess of par common stock [188100 shares * $21] (To record extinguishment of the bonds)	5700000 291650 - -	- - 160550 1881000 3950100