Question

1. Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of Pitts Company: (4 points)

January 1

Issued $3,000,000 of Pitts Company 5-year, 4% bonds at a price of 96.5. Interest on the bonds is payable semiannually on July 1 and January 1. The bonds are callable after 2 years at a price of 102.

July 1

Paid semiannual interest on Pitts Company bonds. (Use straight-line amortization)

December 31

Accrued semiannual interest on Pitts Company bonds. Date Account Titles Debit Credit

At the end of the year, after two amortization entries, what is the carrying value of the bond?

Answer 1

January 1

• Cash A/C Dr 3,000,000

To Bonds payable 3,000,000

(To record bonds issued at face value)

• Cash A/C Dr 2895000

Discounts on bonds payable A/C Dr 105000

To Bonds payable 3000000

(To record issue of bond at a discount)