Question

Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of Pitts Co. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) March 1 Issued $4,000,000 face value Pitts Co. second mortgage, 8% bonds for $4,360,800, including accrued interest. Interest is payable semiannually on December 1 and June 1 with the bonds maturing 10 years from this past December 1. The bonds are callable at 102. June 1 Paid semiannual interest on Pitts Co. bonds. (Use straight-line amortization of any premium or discount.) December 1 Paid semiannual interest on Pitts Co. bonds and purchased $2,000,000 face value bonds at the call price in accordance with the provisions of the bond indenture.

Answer 1

JOURNAL ENTRIES
Date	particulars			Debit	Credit
Mar-01	cash			$   43,60,800.00
	bonds payable				4000000
	premium				$    2,80,800.00
	interest expenses (4000000*8%*3/12)*				$        80,000.00
	(to record issue of 8% bonds)
	interest accrued for 3 months
Jun-01	interest expenses			$     1,52,800.00
	premium on bonds payable *(280800*3/117)			$           7,200.00
	cash				$    1,60,000.00
	(to record payment of interest)
	* premium on bonds will be amortized over 117 months ( 10 years*12 months=120months)
	bonds issue after 3 months hence total no of month will 117
				Debit	Credit
Dec-01	interest exp			$     1,45,600.00
	premium on bonds payable (280800*6/117)			$         14,400.00
	cash				$    1,60,000.00
	( to record payment of interest)
Dec-01	bonds payable			$   20,00,000.00
	premium on bonds payable*			$     1,29,600.00
	gain on redemption of bonds				$        89,600.00
	cash (2000000*102%)				$ 20,40,000.00
	(to record repurchase of bonds previously issue)
	*          (280800-7200-14400)*1/2= 129600