Question

Entries for Issuing and Calling Bonds; Gain Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $576,000 of 25-year, 8% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions: 20Y1 May 1 Issued the bonds for cash at their face amount. Nov. 1 Paid the interest on the bonds. 2015 Nov. 1 Called the bond issue at 98, the rate provided in the bond indenture. (Omit entry for payment of interest.) Issued the bonds for cash at their face amount. 20Y1, May 1 0 Paid the interest on the bonds. 20Y1, Nov. 1 Called the bond issue at 98, the rate provided in the bond indenture. (Omit entry for payment of interest.) 1101 1 a compound transaction, if an amount box does not require an entry, leave it blank. 2085, Nov. 1

Answer 1

Journal

Date	Account title	Debit	Credit
May 1, 2001	Cash	576,000
	Bonds payable		576,000
	(To record issue of bonds)
Nov. 1,2001	Interest expense	23,040
	Cash		23,040
	(To record semi annual interest expense)
Nov. 1, 2005	Bonds payable	576,000
	Gain on redemption of bonds payable		11,520
	Cash		564,480
	(To record redemption of bonds)

Interest expense to be recorded on Nov. 1, 2001 = Par value of bonds x Interest rate x 6/12

= 576,000 x 8% x 6/12

= $23,040

Call price = 98

Cash to be paid for redemption of bonds = Par value of bonds x Call price

= 576,000 x 98%

= $564,480

Gain on redemption of bonds payable = Par value of bonds - Cash to be paid for redemption of bonds

= 576,000 - 564,480

= $11,520

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