Question

The following information is taken from Ayayai Corp's balance sheet at December 31, 2016. Current liabilities Interest payable $ 86,000 Long-term liabilities Bonds payable (4%, due January 1, 2027) $2,640,000 Less: Discount on bonds payable 26,400 2,613,600 Interest is payable annually on January 1. The bonds are callable on any annual interest date. Ayayai uses straight-line amortization for any bond premium or discount. From December 31, 2016, the bonds will be outstanding for an additional 10 years (120 months). (a) Journalize the payment of bond interest on January 1, 2017. (b) Prepare the entry to amortize bond discount and to accrue the interest on December 31, 2017 (c) Assume on January 1, 2018, after paying interest that Ayayai Corp.calls bonds having a face value of $440,000. The call price is 102. Record the redemption of the bonds. (d) Prepare the adjusting entry at December 31, 2018, to amortize bond discount and to accrue interest on the remaining bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit No. Date (a) Jan. 1 2017 86,000 86,000 (b) Dec. 31 2017 108240 105600 2640 (c) Jan 1 2018 Account Titles and Explanation Interest Payable Cash Interest Expense Discount on Bonds Payable Interest Payable Bonds Payable Discount on Bonds Payable Loss on Bond Redemption Cash Interest Expense Discount on Bonds Payable Interest Payable 440,000 448800 (d) Dec 31 2018

Answer 1

Answer:

Date	Account titles and Explanation	Debit ($)	Credit ($)
Jan 1,2017	Interest payable	86,000
	Cash		86,000
	(To record interest paid)
Dec 31,2017	Interest expense	1,08,240
	Discount on bonds payable(26400/10)		2,640
	Interest payable (2640000*4%)		1,05,600
	(To record accured interest)
Jan 1,2018	Bonds payable	4,40,000
	Loss on bond redemption	12,760
	Cash(440000*102%)		4,48,800
	Discount on bonds payable((26400-2640)*440000/2640000)		3,960
	(TO record bond redemption)
Dec 31,2018	Interest expense	90,200
	Discount on bonds payable (26400-2640-3960)/9)		2,200
	Interest payable (2640000-440000)*4%)		88,000
	(To record interest)