Question

Industries is planning for the construction of a 4-level shopping center/movie complex. To finance the construction, Johnnsston is considering the issuance of a $25,000,000 bond issue. The bonds are projected to have the following terms issue on January 1, 2019 a S25 000 000, 20-year 8% bond, paying interest due annually on January 1, of each year for the January 1, 2039. next 20 years. Schoduled rotirement is REQUIRED: 1. Compute the amounts and journalize the tollowing projected transactions related to the bonds: January 1,2019 Issued the entire bond issue to investors. The quote is 102. December 31, 2019 Accrued the interest on the bonds as of December 31, the end of the fiscal year and famortized the valuation account that was recognized on January 1,2019 using the straight-line method Paid the interest due on the bond issue. January 1, 2020 REQUIRED 2. Independent of "1" above, assume December 31, 2019, and January 1, 2020. the bonds are issued at 95, due to economie conditions. Prepare the required journal entries on January 1 REQUIRED a. Assume that management ia planning to retire the bonds early on January 1, 2029. Assume that management is optimistic and projects that they can retire the bonds at 97. What entries would be required on January 1, 2029 (including the interest due on that day Hint: How many years remaining before the scheduled retirement? REQUIRED ning a 12%, 15-year note. The terms of the contract require that The installment payments will include interest and payment on the outstanding also is planning to borrow S90.000 from Fidelity Central Bank by sign sohnnston must pay $13,214.19 every January 1 for the next 10 years. The loan balance. Present the following journal entries: 1. Signing of the note on January 1,2019 2. Accrual of AND payment of the 1st installment payment 3. Accrual of AND payment of the 2nd installment payment

Answer 1

Journal Entries Workings for the amount Account Titles and Explanation Debit (S) Credit ($) Date 4 January 1, 2019 Cash 25500000 D5+D6 Bonds pavable Premium on Bonds Payable -D5*2% 6 To record the issue of bonds 9 December 31, 2019 Interest Cost 1975000 -D11-C10 10 Premium on Bonds Payable -D6/20 Interest Payable -D5*8% To record the interest cost on 12 bonds 13 Interest Payable 14 January 1, 2020 Cash 15 (To record the payment of 16 interest payable 17

19 2 Journal Entries Workings for the amount 20 Account Titles and Explanation Debit (S) Credit ($) Date 22 January 1, 2019 Cash -D24-C23 23750000 23 Discount on Bonds Payable D24*5% Bonds pavable To record the issue of bonds 27 December 31, 2019 Interest Cost 2062500 -D28+D29 -C23/20 Discount on Bonds Pavable 62500 Interest Pavable 29 -D24*8% To record the interest cost on bonds 30 Interest Payable 32 January 1, 2020 Cash (To record the payment of 34 interest payable)

37 3 Journal Entries Workings for the amount 38 Account Titles and Explanation Debit (S) Credit ($) Date 39 Interest Payable 40 January 1, 2029 Cash (To record the payment of 42 interest payable) 43 Bonds Payable 44 January 1, 2029 Cash 45 -C44*9796 24250000 -C23 10/20 Discount on Bonds Payable 46 625000 Gain on Redemption of Bonds 47 -C44-D45-D46 (To record the bonds payable redemption 48 49

51 4 Journal Entries Workings for the amount 52 Account Titles and Explanation Debit (S) Credit ($) 53 Date 54 January 1, 2019 Cash 90000 12% Note Payable 90000 To record the note payable 57 112% Note Payable 2414.19 58 January 1, 2020 -D60-C59 59 Interest Cost 10800 -D55 * 12% 13214.19 Installment Payable 60 To record accrual of installment 61 liabilit 62 13214.19 Installment Payable 63 January 1, 2020 13214.19 Cash 64 To record the installment 65 ment 12% Note Payable 2703.89 67 January 1, 2021 D69-C68 (D55-C58) * 12% 68 Interest Cost 10510.30 Installment Payable 69 13214.19 To record accrual of installment liabilit 70 71 72 January 1, 2021 Installment Payable 13214.19 Cash 73 13214.19 To record the installment ment 75