Question

Cupola Fan Corporation issued 10%, $450,000, 10-year bonds for $430,000 on June 30, 2021. Debt issue costs were $2,000. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for $435,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. Required: 1. to 4. Prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2021 & June 30, 2022, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Bonds is financial instrument where interest is paid. When selling price is less than face value, the bond is said to be at discount, so is the case here. Amortization of bond is the process where the expenses related to bonds are written off over a period of bond.

Date	Particulars	Debit ($)	Credit ($)
30/06/2021	Bank	430,000
	Discount on issue of bonds	20,000
	10% Bonds Payable		450,000
	(To record bonds issued at discount)
30/06/2021	Bond issue expense	2000
	Bank		2000
	(To record bond issue expense)
31/12/2021	Interest (450,000*10%*6/12)	22,500
	Bank		22,500
	(To record interest payment)
31/12/2021	Bond issue expenses w/off	1100
	Discount on issue of bonds 20,000/(10yr*2)		1000
	Bond issue expenses 2000/(10yr*2)		100
	(To record amortization of bond expenses)
30/06/2022	Interest (450,000*10%*6/12)	22,500
	Bank		22,500
	(To record interest payment)
30/06/2022	Bond issue expenses w/off	1100
	Discount on issue of bonds 20,000/(10yr*2)		1000
	Bond issue expenses 2000/(10yr*2)		100
	(To record amortization of bond expenses)
01/07/2017	10% Bonds Payable	450,000
	Bonds issue expenses w/off (bal fig)	4,800
	Bank		435,000
	Discount on issue of bonds (20,000 – 2000)		18,000
	Bonds issue expenses (2000-200)		1800
	(To record bonds retirement)