Question

11:28 PR 14 4A Entries for bonds payable and installment note transactions The following transactions were completed by Winklevoss Ine, whose fiscal year is the calendar year 2016 July 1 Issued $74,000,000 of 20 year, 11% callable bonds dated July 1, 2016, at a mar- 64 317 346 ket (effective) rate of 15%, receiving cash of $64,532,267 Interest is payable semiannually on December 31 and June 30 Oct 1 Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank Dec, 31 Acerued $3,000 of interest on the installment note The interest is payable on 31. Paid the semiannual interest on the bonds. The bond discount amortization of The note requires annual payments of $10,673, with the first payment occurring on September 30, 2017 the date of the next installment note payment $261,693 is combined with the semiannual interest payment 31 Closed the interest expense account 2017 June 50. Paid the semiannual interest on the bonds. The bond discount amortization Sept. 50. Paid the annual payment on the note, which consisted of interest of $12,00o Dec. 31. Accrued $2,570 of interest on the installment note. The interest is payable on 31. Paid the semiannual interest on the bonds. The bond discount amortization of 261,693 is combined with the semiannual interest payment and principal of $28,673 the date of the next installment note payment 8261,693 is combined with the semiannual interest payment $1. Closed the interest expense account 2018 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amor tization of discount have been recorded. (Record the redemption only Sept. 30 Paid the se cond annual payment on the note, which consisted of interest of $10,280 and principal of $30,393 Instructions I. Journalize the entries to record the fo regoing transactions. Round all amounts to the nearest dollar z. Indicate the amount of the interest expense in (a) 2016 and (b) 2017 5. Determine the carrying amount of the bonds as of December 31, 201 1. 2016 July 1 Oct 1 Dec. 31 2017 June 30 Sept. 30 Dec. 31 2018 une 30 Sept. 30 2. 2016 interest expense: b2017 interest expense 3. Initial carrying amount of bonds Discount amortized on December 31, 2016 Discount amortized on June 30, 2017 Discount amortized on December 31, 2017 Carying amount of bonds, December 31, 2017

Answer 1

Date	Account Titles and Explanation	Debit	Credit
July 1, 2016	Cash	6,35,32,267.00
	Discount on Bonds Payable	1,04,67,733.00
	Bonds Payable		7,40,00,000.00
Oct 1, 2016	Cash	2,00,000.00
	Notes Payable		2,00,000.00
Dec 31,2016	Interest Expense	3,000.00
	Interest Payable		3,000.00
Dec 31, 2016	Interest Expense	43,31,693.00
	Discount on Bonds Payable		2,61,693.00
	Cash (74,000,000 x 11% x 6/12)		40,70,000.00
Dec 31,2016	Income Summary	43,34,693.00
	Interest Expense		43,34,693.00
June 30,2017	Interest Expense	43,31,693.00
	Discount on Bonds Payable		2,61,693.00
	Cash (74,000,000 x 11% x 6/12)		40,70,000.00
Sept 30,2017	Interest Expense	9,000.00
	Interest Payable	3,000.00
	Notes Payable	28,673.00
	Cash		40,673.00
Dec 31,2017	Interest Expense	2,570.00
	Interest Payable		2,570.00
Dec 31,2017	Interest Expense	43,31,693.00
	Discount on Bonds Payable		2,61,693.00
	Cash (74,000,000 x 11% x 6/12)		40,70,000.00
Dec 31,2017	Income Summary	86,74,956.00
	Interest Expense		86,74,956.00
June 30,2018	Bonds Payable	7,40,00,000.00
	Loss on Redemption of Bonds	79,40,961.00
	Discount on Bonds Payable		94,20,961.00
	Cash ( 74,000,000 x 98%)		7,25,20,000.00
Sept 30,2018	Interest Expense	7,710.00
	Interest Payable	2,570.00
	Notes Payable	30,393.00
	Cash		40,673.00
B)
Interest Expenses -2016	43,34,693.00
Interest Expenses -2017	86,74,956.00
c)
Initial carrying amount of bonds	6,35,32,267
Discount amortized on December 31, 2016	2,61,693
Discount amortized on June 30, 2016	2,61,693
Discount amortized on December 31, 2017	2,61,693
Carrying amount of bonds, December 31, 2017	6,43,17,346