Question

Problem 10-3A The following section is taken from Hardesty's balance sheet at December 31, 2016. Current liabilities Interest payable $ 46,500 Long-term liabilities Bonds payable (9%, due January 1, 2020) 565,000 Interest is payable annually on January 1. The bonds are callable on any annual interest date. (a) Journalize the payment of the bond interest on January 1, 2017. (b) Assume that on January 1, 2017, after paying interest, Hardesty calls bonds having a face value of $160,000. The call price is 107. Record the redemption of the bonds. (c) Prepare the adjusting entry on December 31, 2017, to accrue the interest on the remaining bonds.

Answer 1

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