Question

Kershaw Electric sold $6,000,000, 10%, 10-year bonds on January 1, 2019. The bonds were dated January 1, 2019, and paid interest on January 1. The bonds were sold at 98.

Answer 1

Answer:

A. Jan. 1, 2019

Dr Cash 5,880,000

Cr Discount on bonds payable 120,000

Cr Bonds payable 6,000,000

B. $5,888,000

C. Jan. 1, 2019

Dr Bonds Payable 6,000,000

Dr Loss on Redemption 224,000

Cr Discount on Bonds Payable 104,000

Cr Cash 6,120,000

Explanation:

A.Preparation of the journal entry to record the issuance of the bonds on January 1, 2019

Jan. 1, 2019

Dr Cash 5,880,000

(98%*6,000,000)

Cr Discount on bonds payable 120,000

(2%*6,000,000)

Cr Bonds payable 6,000,000

(To record issue bonds payable)

B. Preparation of the balance sheet presentation of the long-term liability

Balance Sheet December 31, 2019

Long-term liabilities

Bonds payable 6,000,000

Less: Discount on bonds payable 112,000

(120,000-8,000)

Long-term liabilities $5,888,000

C. Preparation of the Journal entry to record the redemption of the bonds

Jan. 1, 2019

Dr Bonds Payable 6,000,000

Dr Loss on Redemption 224,000

(6,120,000-5,896,000)

Cr Discount on Bonds Payable 104,000

(6,000,000-5,896,000)

Cr Cash 6,120,000

(6,000,000*102%)

(To record redemption of bonds)