Question

The following major transactions pertain to the long-term bonds of Jenn Co.

On April 1, year 1, Jenn issued $1,200,000, 9% bonds initially dated January 1, year 1, for $1,388,816, including accrued interest to yield 7%. Interest is payable annually on December 31. On July 1, year 3, Jenn retired $400,000 of the bonds at 102 plus accrued interest. Jenn uses effective-interest amortization.

1. Record the issuance of the bonds in Jenn’s General Journal on April 1, year 1, including a brief explanation.

2. Prepare an amortization schedule for the bonds until December 31, year 3.

3. Record the payment of interest in Jenn’s General Journal for all of the bonds on December 31, year 1, including a brief explanation.

4. Record the payment of interest in Jenn’s General Journal for the retired bonds on July 1, year 3, including a brief explanation.

5. Record the retirement of the bonds in Jenn’s General Journal on July 1, year 3, including a brief explanation.

Answer 1

	In the Present question :-
	Principal	1200000
	Coupon rate	9.00%
	Period	10
	Yeild Rate	7.00%
	Yearly Interest	$108,000.00	(1200000*9%)
	1.)
	Date	Account Titles & Explanation			Debit	Credit
	1-Jan-19	Cash			$1,388,816.00
		Premium on Bonds Ammortization				$188,816.00
		Bonds Payable				$1,200,000.00
		(Cash Received for Bonds)
	Explanation:- Amount received is debited in cash and the face value of bonds is credited to
	Bonds Payable A/c. The Balance is shown as Premium on Bond Ammortization.
	2.)
	Bond Ammortization Schedule would be
Yr.	A	B	C	D	E	F	G
		Interest Pmt.	Interest	Premium	Credit Bal.	Credit Bal.	Carrying Amount
		Cash Paid	Expense	Ammortization	in the account	in the account	of Bonds
		9% * Face	Mkt 7 % * G	C minus B	Bond Premium	Bonds Payable	F Minus E
1	1-Apr	$0.00	$0.00	$0.00	-$188,816.00	$1,200,000.00	$1,388,816.00
1	31-Dec	$108,000.00	$97,217.12	-$10,782.88	-$178,033.12	$1,200,000.00	$1,378,033.12
2	31-Dec	$108,000.00	$96,462.32	-$11,537.68	-$166,495.44	$1,200,000.00	$1,366,495.44
3	1-Jul	$18,000.00	$15,942.45	-$2,057.55	-$109,625.26	$800,000.00	$909,625.26
3	31-Dec	$72,000.00	$63,673.77	-$8,326.23	-$101,299.03	$800,000.00	$901,299.03
	3.)
	Journal entries to record the payment of interest
	Date	Description			Amount(Dr.)	Amount(Cr.)
	1st July	Interest expense on Bonds			$18,000.00
	Year 3	Cash/Bank				$18,000.00
		(Interest Paid for one third of the bonds to be
		redeemed-(400000*9%*6/12)
	4.)
	Journal entries to record the retirement of Bonds
	1st July	Bonds Payable			$400,000.00
	Year 3	Premium on Bond Ammortization			$54,812.63		(164437.89/3)
		Gain on Retirement				$46,812.63	(400000+54812.63-408000)
		Cash/Bank				$408,000.00	(400000*102%)
		(Bonds Retired at end of Year 3)