Answer:
1. The journal entry records are the following:
1-jul year 1 Debit Credit
Cash $63,532,267
discount on bonds payable $10,467,733
bonds payable $74,000,000
31-dec year 1 Debit Credit
Interest expense $4,331,693
discount on bonds payable $261,693
Cash $4,070,000
31-dec year 1 Debit Credit
Income Summary $4,331,693
Interest expense $4,331,693
30-jun year 2 Debit Credit
Interest expense $4,331,693
discount on bonds payable $261,693
Cash $4,070,000
31-dec year 2 Debit Credit
Interest expense $4,331,693
discount on bonds payable $261,693
Cash $4,070,000
Income Summary $8,663,386
Interest expense $8,663,386
30-jun year 3 Debit Credit
Bond payable $74,000,000
Loss on redemption $7,940,961
Cash $9,420,961
discount on bonds payable $72,520,000
2. a. The amount of the interest expense in Year 1 is $4,331,693
b. The amount of the interest expense in Year 2 is $8,663,386
3. The carrying amount of the bonds as of December 31, Year 2 is $64,317,346.
Explanation:
First, to journalize the entry record for 1-jul of year 1 we have to calculate the discount on bonds payable as follows:
discount on bonds payable=$74,000,000-$63,532,267=$10,467,733
1. Therefore, journal for entry record for 1-jul of year 1 is:
1-jul year 1 Debit Credit
Cash $63,532,267
discount on bonds payable $10,467,733
bonds payable $74,000,000
To journalize the entry record for 31 decl of year 1 we have to calculate the cash as follows:
Cash=$74,000,000×11%×1/2
Cash=$4,070,000
Therefore, journal for entry record for 31-dec of year 1 is:
31-dec year 1 Debit Credit
Interest expense $4,331,693
discount on bonds payable $261,693
Cash $4,070,000
31-dec year 1 Debit Credit
Income Summary $4,331,693
Interest expense $4,331,693
To journalize the entry record for 30 jun of year 2 we have to calculate the cash as follows:
Cash=$74,000,000×11%×1/2
Cash=$4,070,000
Therefore, journal for entry record for 30-jun of year 2 is:
30-jun year 2 Debit Credit
Interest expense $4,331,693
discount on bonds payable $261,693
Cash $4,070,000
journal for entry record for 31-dec of year 2 is:
31-dec year 2 Debit Credit
Interest expense $4,331,693
discount on bonds payable $261,693
Cash $4,070,000
31-dec year 2 Debit Credit
Income Summary $8,663,386
Interest expense $8,663,386
Journal for entry record for 30-jun of year 3 is:
30-jun year 3 Debit Credit
Bond payable $74,000,000
Loss on redemption $7,940,961
Cash $9,420,961
discount on bonds payable $72,520,000
2.
a. The amount of the interest expense in Year 1 is $4,331,693
b. The amount of the interest expense in Year 2= interest expense on bonds payable June 30+interest expense on bonds payable Dec 31=$4,331,693+$4,331,693=$8,663,386
3. The carrying amount of the bonds as of December 31, Year 2=Issue price of bonds-discount amortized
Discount amortized=$9,420,961- $261,693=$9,682,654
The carrying amount of the bonds as of December 31, Year 2=$74,000,000-$9,682,654=$64,317,346
