Answer:
Hardesty
a) January 1, 2017:
Debit Interest payable $46,500
Credit Cash $46,500
To record the payment of interest on bonds.
b) January 1, 2017:
Debit Long-term liabilities Bonds payable $160,000
Debit Bonds Redemption Expense $11,200
Credit Cash $171,200
To record the redemption of bonds at 107.
c) December 31, 2017:
Debit Interest Expense $36,450
Credit Interest Payable $36,450
To record interest expense for balance of bonds.
Explanation:
a) Data and Calculations:
Current liabilities
Interest payable $ 46,500
Long-term liabilities Bonds payable (9%, due January 1, 2020) $565,000
Interest payment date = January 1
Face value of bonds called = $160,000
Call price = 107
Bond redemption expense = ($160,000 * 107/100) - $160,000 = $11,200
Interest expense for 2017:
= ($565,000 - $160,000) * 9% = $36,450
