Answer:
Mia Breen Corp.
Journal Entries:
May 1: Debit 110 Cash $996,000
Credit 251 9% Callable Bonds Payable $996,000
To record the issuance of the 9% callable bonds for 15 years.
Nov. 1: Debit 710 Interest Expense $4,820
Credit 110 Cash $44,820
To record the payment of interest.
Year 5:
Nov. 1: Debit 251 9% Callable Bonds Payable $996,000
Credit Cash $986,040
Credit 711 Loss on Redemption of Bonds $9,960
To record the redemption of the bonds at 99 and the accruing gain.
Explanation:
a) Data and Calculations:
Face value of 9% callable bonds issued = $996,000
Price of the bonds = $996,000
Coupon interest rate = 9%
Maturity period = 15 years
Payment terms = semiannual on May 1 and November 1
Year 1:
May 1:
Cash payment = $44,820 ($996,000 * 4.5%)
Interest expense = $44,820
Analysis:
May 1: 110 Cash $996,000 251 9% Callable Bonds Payable $996,000
Nov. 1 710 Interest Expense $4,820 110 Cash $44,820
Year 5:
Nov. 1: 251 9% Callable Bonds Payable $996,000 Cash $986,040 711 Loss on Redemption of Bonds $9,960
