Question

TUV Company sold a 5 year, $5,000,000 bond at 97. The face interest rate is 6%...

TUV Company sold a 5 year, $5,000,000 bond at 97. The face interest rate is 6%

  1. Prepare the journal entry necessary to record the sale of the bond.

  1. Assuming straight line amortization, calculate the annual interest expense and prepare the journal entry necessary to record the annual interest expense.

  1. At year 3.5, the bond is called at 103. Prepare the journal entry necessary to record the bond redemption.
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Answer #1

Journal entry

No General Journal Debit Credit
a Cash (5000000*.97) 4850000
Discount on bonds payable 150000
Bonds payable 5000000
b Interest expense 330000
Discount on bonds payable (150000/5) 30000
Cash (5000000*6%*6/12) 300000
c Bonds payable 5000000
Loss on bond redemption 195000
Premium on bonds payable (150000/5*1.5) 45000
Cash (5000000*1.03) 5150000

Interest expense = 5000000*6% = 300000

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