Question

Champion Oil issued 10-year bonds dated January 1, 2020. The bonds were issued on March 1, 2020, with accrued interest. Interest was payable on the bonds on January 1 and July 1 of each year. The company's year-end was December 31. Champion followed ASPE and chose to use the straight-line amortization method. On May 31, 2023, Champion retired a portion of the bond issue, paying any accrued interest at that date. Addtional information pertaining to the bond issue follows: Face value of bonds Issue price of bonds Bond coupon rate Portion of bond issue retired Bond retirement (repurchase) price $ 875,000 96 9% 28% 98 Required: a) Prepare the journal entry for the issuance of the bond on March 1, 2020. b) Prepare any journal entries required on July 1, 2020 and December 31, 2020. c) Prepare any journal entries required for the retirement of a portion of the bond issue on May 31, 2023.

Answer 1

Journal Entries:
Date	Acc Titles	Debit $	Credit $
1-Mar-20	Cash	840000		(875000*96%)
	Discount on Bond Payable	35000
	Interest expense	13125		(875000*9%*2/12)
	Bonds payable		875000
	Interest Payable		13125
	(issuance of bond with accrued interest)
1-Jul-20	Interest expense	28000
	Interest Payable	13125
	Cash		39375	(875000*9%*6/12)
	Discount on Bond Payable		1750	35000/20
	(half yearly interest paid and discount amortised)
31-Dec-20	Interest expense	41125
	Interest Payable		39375
	Discount on Bond Payable		1750
	(2nd half year interest paid and discount amortised)
31-May-23	Bonds payable	245000		(875000*28%)
	Interest expense	18375		245000*9%*5/6
	Loss on retirement of bonds	1960		(balancing figure)
	Discount on Bond Payable		6860	(35000*28%*(120-36)/120)
	Cash		258475	(245000*98% + 18375)
	(retirement of 28% bonds alongwith interest due)