Question

Entries for Bonds Payable, including bond redemption The following transactions were completed by Montague Inc., whose fiscal year is the calendar year: 20Y1 July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, 20Y1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment. 20Y2 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment. Dec. 31. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment. 2013 June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)
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Answer 1

Account Titles and explanation Debit Credit Date 20Υ1 July 1 Cash $62,817,040 Premium on bonds payable ($62,817,040-$55,000,000) Bonds payable (To record the issuance of bonds) $ 7,817,040 $55,000,000 Dec-31 Interest expense ($2,475,000-$390,852) Premium on bonds payable $ 2,084,148 390,852 $ 2,475,000 Cash ($55,000,000*9%*1/2) (To record the interest expense) | 20Y2 June 30 Interest expense ($2,475,000-$390,852) Premium on bonds payable $ 2,084,148 390,852 Cash ($55,000,000*9%*1/2) (To record the interest expense) $ 2,475,000 Dec-31 Interest expense ($2,475,000-$390,852) Premium on bonds payable Cash ($55,000,000*9%*1/2) (To record the interest expense) $ 2,084,148 $ 390,852 $2,475,000 20Y3 June 30 Bonds payable $55,000,000 Premium on bonds payable $6,253,632 $ 4,603,632 $56,650,000 Gain on redemption of bonds (Bal fig.) Cash ($55,000,000*103%) (To record the redemption of bonds)

2) Interest expense: Year 1 $2,084,148 Year 2 $2,084,148 + $2,048,148 = $4,168,296 3) Carrying amount of bonds as of December 31, 20Y2 = $62,817,040 - $390,852-$390,852-$390,852 Carrying amount of bonds as of December 31, 20Y2 = $61,644,484