Question

Problem 15-07A a-d The following is taken from the Ivanhoe Company balance sheet. BACK Frida Ivanhoe Company Balance Sheet (partial) December 31, 2020 Current Liabilities Interest payable (for 12 months from January 1 to December 31) Long-term Liabilities Bonds payable, 6% due January 1, 2028 Add: Premium on bonds payable $157,800 $2,630,000 Tube 249,000 $2,879,000 Interest is payable annually on January 1. The bonds are calable on any annual interest date. Ivanhoe uses straight-line amortization for any bond premium or discount From December 31, 2020, the bonds will be outstanding for an additional 10 years (120 months). Your answer is correct SDC 110 Journalize the payment of bond interest on January 1, 2021. (Credit account bites are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Jan 1, 2021 Interest Payable Debit 157800 Cash 157800 openg 110 sande SHOW LIST OF ACCOUNTS LINK TO TEXT

Answer 1

Solution Face value of Bonds Unamortized premium as at December 31, 2020 Coupon rate of interest Number of years to maturity $2,630,000 $249,000 6% 10 Years Yearly premium amortization (straight-line) = $249,000 / 10 = $24,900 Required 1: Journal entry to record payment of bond interest on January 1, 2021 Credit Debit $157,800 Date Account Titles and Explanation Jan. 1, 2021 Interest Payable Cash (To record payment of bond interest) $157,800 Required 2: Journal entry to record amortization of bond premium and to accrue interest Credit Date Account Titles and Explanation Dec. 31, 2021 Interest expense ($157,800 - $132,900) Premium on bonds payable Interest payable ($2,630,000 x 6%) (To record bond interest expense) Debit $132,900 $24,900 $157,800 Required 3: Journal entry to record bond redemption Credit Debit $1,052,000 $89,640 Date Account Titles and Explanation Jan. 1, 2022 Bonds Payable Premium on Bonds Payable (WN-1) Gain on redemption of Bonds Cash ($1,052,000 x 102%) (To record bond redemption) $68,600 $1,073,040 WN-1: Calculation of Gain/loss on redemption of Bonds $1,052,000 $89,640 Face value of Bonds redeemed Unamortized premium on Bonds redeemed on the date of redemption ($249,000 - $ 24,900) x ($1,052,000 / $2,630,000) Carrying amount of bonds redeemed on the date of redemption Payment of redemption of Bonds ($1,052,000 x 102%) Gain on redemption of Bonds $1,141,640 $1,073,040 $68,600 Required 4: Journal entry to record amortization of bond premium and to accrue interest on remaining bonds Credit Date Account Titles and Explanation Dec. 31, 2022 Interest expense Premium on bonds payable (WN-2) Interest payable ($1,578,000 x 6%) Debit $79,7401 $14,940 $94,680 WN-2: Premium amortization on Bonds remaining Face value of Remaining Bonds ($2,630,000 - $1,052,000) Unamortized discount on remaining bonds ($249,000 - $24,900 - $89,640) Remaining number of years till maturity as at January 1, 2022 Premium amortization on remaining bonds ($134,460 /9) $1,578,000 $134,460 9 Years $14,940