Question

uctions following transactions were completed by Winklevoss Inc, whose fiscal year is the calendar year Year 1 July Issued S75, 100,000 of 20-year, 8% callable bonds dated July 1. Year 1, at a market (effective) rate of 10%, receiving cash of $62213861 Interest is payable semiannually on December 31 and June 30, Paid the semiannual interest on the bonds. The bond discount amortization of $322.153 is combined with the semiannual interest payment Closed the interest expense account 1 Dec. 31 31 Year 2 June 30 Paid the semiannual interest on the bonds. The bond discount amortization of $322 153 is combined Dec. 31 Paid the semiannual interest on the bonds. The bond discount amortization of $322,153 is combined with the semiannual interest payment with the semiannual interest payment Closed the interest expense account. 31 Year 3 June 30 Recorded the redemption of the bonds, which were called at 98 The balance in the bond discount account is $11,597,527 after payment of interest and amortization of discount have been recorded (Record the redemption only) Required 1. Journalize the entries to record the transactions. Round all amounts to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles 2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2 3. Determine the carrying amount of the bonds as of December 31, Year2

Answer 1

Date	Account Titles and explanation	Debit ($)	Credit ($)
Year 1
Jul-01	Cash	6,22,13,861
	Discount on bonds payable ($75,100,000-$62,213,861)	1,28,86,139
	Bonds payable		7,51,00,000
	(To record the issue of bonds)
Dec-31	Interest expense	33,26,153
	Discount on bonds payable		3,22,153
	Cash (75,100,000*8%*6/12)		30,04,000
	(To record the interest expense)
Dec-31	Income summary	33,26,153
	Interest expense		33,26,153
	(To Close the interest expense)
Year 2
Jun-30	Interest expense	33,26,153
	Discount on bonds payable		3,22,153
	Cash (75,100,000*8%*6/12)		30,04,000
	(To record the interest expense)
Dec-31	Interest expense	33,26,153
	Discount on bonds payable		3,22,153
	Cash (75,100,000*8%*6/12)		30,04,000
	(To record the interest expense)
Dec-31	Income summary (3326153+3326153)	66,52,306
	Interest expense		66,52,306
	(To Close the interest expense)
Year 3
Jun-30	Bonds payable	7,51,00,000
	Loss on redemption of bonds	1,00,95,527
	Discount on bonds payable		1,15,97,527
	Cash (75,100,000)		7,35,98,000
	(To record the redemption of bonds)

2)
Interest expense:
Year 1	33,26,153
Year 2	66,52,306
3)
Carrying amount at end of year 2 = $62,213,861 + 322153 +322153 +322153
Carrying amount at end of year 2 = 63180320