Question

Problem 14-07 On April 1, 2020, Ayayai Company sold 14,400 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, Ayayai took advantage of favorable prices of its stock to extinguish 4,200 of the bonds by issuing 138,600 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 $32 per share on March 1, 2021. Prepare the journal entries needed on the books of Ayayai 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 o 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 4,200 bonds. (No reversing entries made.) X Problem 14-07. List Of Accounts - Google Chrome - O edugen.wileyplus.com/edugen/shared/assignment/test/qchart.uni?itemid=EAT_1549254705... Q Debit Credit No. (a) Date Account Titles and Explanation 4/1/20 List Of Accounts CLOSE Problem 14-07 (b) 10/1/20 (6) 12/31/20 (d) 3/1/21 Accumulated Depreciation Equipment Accumulated Depreciation Machinery Accumulated Depreciation-Plant and Equipment Allowance for Doubtful Accounts Bad Debt Expense Bond Issue Expense Bonds Payable Buildings Cash Common Stock Cost of Goods Sold Debt Investments Depreciation Expense Discount on Bonds Payable Discount on Notes Payable Discount on Notes Receivable Equipment Equity Investments Gain on Disposal of Machinery Gain on Disposal of Land Gain on Disposal of Plant Assets Gain on Redemption of Bonds Gain on Restructuring of Debt Gain on Sale of Machinery Interest Expense Interest Payable Interest Receivable (To record interest and discount on bonds retired) 3/1/21 (To record extinguishment of the bonds)

Answer 1

Answer :-

Journal Entries In the books of Ayayai Company:

	Dates	Account titles	Debit	Credit
a)	April 1,2020	Cash ( 14,400 × $1000 × 97%)	13,968,000
		Discount on bonds payable (Bond Payable Amount - Cash = 14,400,000 - 13,968,000)	432,000
		Bond payable ( 14,400 × $1000)		14,400,000
b)	Oct 1,2020	Interest expense	746,400
		Cash ( 14,400,000 × 11% × 6/12)		732,000
		Discount on bond payable [( 432,000 ÷ 180 months ) × 6 months]		14,400
c)	Dec 31,2020	Interest expenses	373,200
		Interest payable (732,000 × 3/6)		366,000
		Discount on bond payable [( 432,000 ÷ 180 months ) × 6 months × 1/2]		7,200
d)	March 1,2021	Interest expense	78,400
		Interest payable [4200 × $1000 × 11% ( 3 month / 12 month )]	115,500
		Discount on bonds payable [14,400 × (2 month / 6 month ) × ( 4,200,000 / 14,400,000)]		1400
		Cash [ 4200 × $1000 × 11% ( 5 month /12 month)]		192,500
	March 1 ,2021	Bond payable	4,200,000
		Loss on redemption of bond	353,200
		Discount on bonds payable		118,300
		Common stock (138,600 × $10 par value )		1,386,000
		Paid in capital in excess of par		3,048,900
		(To record extinguishment of the bond)

Bond Payable (4200 × $ 1000)	4,200,000
Less :- unamortized discount [(432,000 ÷ 180) × 169 month × (4200/14,400)]	118,300
Amount of retired bond	4,082,000
Brought stock $32 per share (138,600 × 32)	4,435,200
Add - Amount of retired bond	4,082,000
Loss on redemption of bond	353,200