Question

On April 1, 2020, Sweet Company sold 32,400 of its 11%, 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, Sweet took advantage of favorable prices of its stock to extinguish 4,200 of the bonds by issuing 138,600 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 Sweet Company to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 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 4,200 bonds. (No reversing entries made.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	4/1/20
(b)	10/1/20
(c)	12/31/20
(d)	3/1/21
		(To record interest and discount on bonds retired)
	3/1/21
		(To record extinguishment of the bonds)

Answer 1

ANSWER

Journal of Headland Company

No.	Date	Account Titles and Explanation	Debit ($)	Credit ($)
(a)	4/1/20	Cash [(32,400 bonds * $1000) * 97%] Discount on Bonds Payable [Difference] Bonds Payable [32,400 bonds * $1000] (To record issuance of the bonds)	31,428,000 972,000 -	- - 32,400,000
(b)	10/1/20	Interest Expense [Difference] Discount on Bonds Payable [($972,000/ 15 years) * 6/12] Cash [($32,400,000* 11%) * 6/12] (To record payment of semiannual interest)	1,814,400 - -	- 32,400 1,782,000
(c)	12/31/20	Interest Expense [Difference] Discount on Bonds Payable [($972,000/15 years) * 3/12] Interest Payable [($32,400,000* 11%) * 3/12] (To record accrual of interest expense)	907,200 - -	- 16,200 891,000
(d)	3/1/21	Interest Expense [Difference] Interest Payable [$891,000* (4,200/32,400)] Discount on Bonds Payable [($972,000/ 15 years) * 2/12] * 4200/32,400] Cash [($32,400,000* 11%) * 2/12] (To record interest and discount on bonds retired)	479,900 115,500 - -	- - 1400 594,000
	3/1/21	Bonds Payable [4200 bonds * $1000] Loss on redemption of Bond [Difference] Discount on bond payable [($923,400* 4200/32,400) - $1400] Common Stock [138,600 shares * $10] Paid-in Capital in Excess of par common stock [138,600 shares * $21] (To record extinguishment of the bonds)	4,200,000 214,900 - -	- - 118,300 1,386,000 2,910,600

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