Question

Problem 14-16 Debt issue costs; issuance; expensing; early extinguishment; straight-line amortization [LO14-2, 14-5] Cupola Fan Corporation issued 896, $560,000, 10-year bonds for $534,000 on June 30, 2018. Debt issue costs were $3,100. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2019), the corporation exercised its call privilege and retired the bonds for $540,000. 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 entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2018 & 2019, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list 1 Record the issuance of the bonds 2 Record the payment of interest 3 Record the payment of interest. 4 Record the call of the bonds.

Answer 1

Solution:

Journal Entries - Cupola Fan Corporation
Event	Date	Particulars	Debit	Credit
1	30-Jun-18	Cash Dr	$530,900.00
		Discount and debt issue cost Dr	$29,100.00
		To Bond Payable		$560,000.00
		(To record issue of bond)
2	31-Dec-18	Interest expense Dr	$23,855.00
		To Cash ($560,000*4%)		$22,400.00
		To Discount and debt issue cost ($29,100/20)		$1,455.00
		(To record interest payment and discount amortization)
3	30-Jun-19	Interest expense Dr	$23,855.00
		To Cash ($560,000*4%)		$22,400.00
		To Discount and debt issue cost ($29,100/20)		$1,455.00
		(To record interest payment and discount amortization)
4	1-Jul-19	Bond Payable Dr	$560,000.00
		Loss on retirement of bond Dr	$6,190.00
		To Discount and debt issue cost		$26,190.00
		To Cash		$540,000.00
		(To record repayment of bond)