Question

Prepare journal entries to record the issuance of the bonds and the retirement of bonds. (Show computations and round to the n...The December 31, 2018 balance sheet of Wolfe Co. included the following items:7.5% bonds payable due December 31, 2026 $3,000,000Unamortized discount on bonds payable 120,000The bonds were issued on December 31, 2016 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization.)On April 1, 2016, Wolfe retired $600,000 of these bonds at 101 plus accrued interest.

Answer 1

Answer:

issuance entry:

cash                   2,850,000 debit

discount on BP     150,000 debit

         bonds payable           3,000,000 credit

--to record issuance--

bonds payable      600,000 debit

loss on redemption 30,000 debit

interest expense     56,250 debit

                 cash                     662,250 credit

                 discount on BP      24,000 credit

--to record redemption ---

Explanation:

proceeds at issuance : $3,000,000 x 95/100 = 2,850,000

the difference will be the discount.

Now, when the bonds are retired we have to check the weight:

3,000,000 --> 120,000

  600,000 --> 120,000/3,000,000 x 600,000 = 24,000

cash outlay 600,000 x 101/100 = 606,000

loss redemption

we pay 606,000

for bonds which are worth: 600,000 - 24,000 = 576,000

The loss is the difference.

then, we calcualte the accrued interest:

principal x rate x time

3,000,000 x 7.5% x 3/12 = 56,250‬

this will be an interest expense

as well as an additional cash outlay