Question

On April 1, 2020, Bonita Company sold 21,600 of its 10%, 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, Bonita took advantage of favorable prices of its stock to extinguish 6,300 of the bonds by issuing 207,900 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 $31 per share on March 1, 2021. Prepare the journal entries needed on the books of Bonita Company to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to O 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 6,300 bonds. (No reversing entries made.) Account Titles and Explanation Debit Credit No. (a) Date 4/1/20 (b) 10/1/20 (c) 12/31/20 !!! (d) 3/1/21 To record interest and discount on bonds retired)

Please show all work. Thanks!

Answer 1

Solution:

Journal Entries - Bonita Company
Date	Particulars	Debit	Credit
1-Apr-20	Cash Dr (21600*1000*97%)	$20,952,000.00
	Discount on bond payable Dr (21600*1000*3%)	$648,000.00
	To Bond Payable		$21,600,000.00
	(To record issue of bond)
1-Oct-20	Interest expense Dr	$1,101,600.00
	To Cash ($21,600,000*10%*6/12)		$1,080,000.00
	To Discount on bond payable ($648,000/30)		$21,600.00
	(To record semiannual interest payment and discount amortization)
31-Dec-20	Interest expense Dr	$550,800.00
	To Interest payable ($21,600,000*10%*3/12)		$540,000.00
	To Discount on bond payable ($648,000/15*3/12)		$10,800.00
	(To record interest accrued and discount amortization)
1-Mar-21	Interest expense Dr	$107,100.00
	Interest payable Dr (6300*$1,000*10%*3/12)	$157,500.00
	To Cash (6300*$1,000*10%*5/12)		$262,500.00
	To Discount on bond payable ($6,300,000*3%/15*2/12)		$2,100.00
	(To record interest payment to retiring bond holders)
1-Mar-21	Bond Payable Dr	$6,300,000.00
	Loss on retirement of bond Dr	$322,350.00
	To Discount on bond payable ($6,300,000*3% - $189,000/15*11/12)		$177,450.00
	To Common Stock (207900*$10)		$2,079,000.00
	To Paid in capital in excess of par - common stock (207900*$21)		$4,365,900.00
	(To record extinguishment of bond)