Question

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Exercise 15-7 The following section is taken from Ohlman Corp.'s balance sheet at December 31, 2016 Current liabilitles Interest payable 94,500 Long-term liabilities Bonds payable, 6%, due January 1, 2021 1,575,000 Bond interest is payable annually on January 1. The bonds are callable on any interest date Journalize the payment of the bond interest on January 1, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 SHOW LIST OF ACCOUNTS Assume that on January 1, 2017, after paying interest, Ohlman calls bonds having a face value of $590,500. The call price is 103. Record the redemption of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Jan. 1 SHOW LIST OF ACCOUNTS Prepare the entry to record the accrual of interest on December 31, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Dec. 31 SHOW LIST OF ACCOUNTS

Answer 1

Exercise 15-7: Date Account Title DebitCredit Jan. 1, 2017 Interest payable [S15,75,000 x 66] Cash $94,500 NOTE As bond interest is payable annually, accrual interest entry would have been recorded on December 31, 2016 itself by debiting interest expense and crediting interest payable accounts with $94,500. So, when interest is paid in Jan 2017, Interest payable account is debited.

Debit Credit $590,500 I- Par value of the bond redeemed] - Balancing Figure ->$608,215 $590,500 Jan. 1, 2017 Bonds Payable Loss on Bond redemption$17,715 $17,715] Cash $608,215 |[$590,500 x 103%) Journal Entry to record accrual of the bond interest on December 31, 2017 Date Account Title Debit Credit Dec. 31, 2017 Interest expense $59,070 I($15,75,000 $590,500) x 6%] Interest payable $59,070