Answer:
See the journal entries below.
Explanation:
Note: This question is not complete. The complete question is therefore provided before answering the question as follows:
Cupola Fan Corporation issued 10%, $400,000, 10-year bonds for $385,000 on June 30, 2021. Debt issue costs were $1,500. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2022), the corporation exercised its call privilege and retired the bonds for $395,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.
Required: Prepare the journal entries to record the (a) issuance of the bonds, (b)the payment of interest and (c) amortization of debt issue costs on December 31, 2021 & June 30, 2022, and the (d) call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
The explanation of the answer in now given as follows:
(a) issuance of the bonds
The journal entries will look as follows:
<u>Date Accounts Title $ Explan. Debit ($) Credit ($) </u>
30 Jun. ’21 Cash (w.1) 383,500
Bonds Payable 383,500
<u><em> (To record the issuance of Bonds.) </em></u>
(b)the payment of interest
The journal entries will look as follows:
<u>Date Accounts Title $ Explan. Debit ($) Credit ($) </u>
31 Dec. ’21 Interest Expense 20,825
Bonds Payable (w.5) 825
Cash (w.2) 20,000
<em><u> (To record the Interest Expense.) </u></em>
30 Jun. ’22 Interest Expense 20,825
Bonds Payable (w.5) 825
Cash (w.2) 20,000
<u><em> (To record the Interest Expense.) </em></u>
(d) call of the bonds
The journal entries will look as follows:
<u>Date Accounts Title $ Explan. Debit ($) Credit ($) </u>
01 Jul. ’22 Bonds Payable (w.1) 385,150
Loss on Bonds retired (w.7) 9,850
Cash $395,000
<u><em> (To record the bonds retired early.) </em></u>
<u>Workings:</u>
w.1: Cash received = Bonds Payable = Amount the bond is issued - Debt issue costs = $385,000 - $1,500 = $383,500
w.2: Interest Expense= Bond face value * Bond rate * (Number of months in semiannual / Number of months in a year) = $400,000 * 10% * (6/12) = $20,000
w.3: Total cost on Bonds Payable issued = (Bond face value - Amount the bond is issued) + Debt issue costs = ($400,000 - $385,000) + $1,500 = $15,000 + $1,500 = $16,500
W.4: Annual cost amortization = Total cost on Bonds Payable issued * Bond rate =$16,500 * 10% = $1,650
w.5: Semiannual cost amortization = Annual cost amortization * (Number of months in semiannual / Number of months in a year) = $1,650 * (6/12) = $825
w.6: Total amount Payable on Bonds = Cash received from w.1 + Semiannual cost amortization on 31 December 2021 + + Semiannual cost amortization on 30 June 2022 = $383,500 + $825 + $825 = $385,150
w.7: Loss on retirement of Bonds = Amount the bond is retired - Total Amount Payable on Bonds = $395,000 - $385,150 = $9,850
