Question

# The following information is taken from Pronghorn Corp.’s balance sheet at December 31, 2016. Current liabilities...

The following information is taken from Pronghorn Corp.’s balance sheet at December 31, 2016. Current liabilities Interest payable \$ 92,000 Long-term liabilities Bonds payable (7%, due January 1, 2027) \$4,080,000 Less: Discount on bonds payable 40,800 4,039,200 Interest is payable annually on January 1. The bonds are callable on any annual interest date. Pronghorn uses straight-line amortization for any bond premium or discount. From December 31, 2016, the bonds will be outstanding for an additional 10 years (120 months). (a) Journalize the payment of bond interest on January 1, 2017. (b) Prepare the entry to amortize bond discount and to accrue the interest on December 31, 2017. (c) Assume on January 1, 2018, after paying interest, that Pronghorn Corp. calls bonds having a face value of \$680,000. The call price is 102. Record the redemption of the bonds. (d) Prepare the adjusting entry at December 31, 2018, to amortize bond discount and to accrue interest on the remaining bonds.

Journal entry

 Date General Journal Debit Credit Jan 1 Interest payable 92000 Cash 92000 Dec 31 Interest expense 96080 Discount on bonds payable (40800/10) 4080 Interest payable 92000 Jan 1,2018 Bonds payable 680000 Loss on bond redemption 19720 Discount on bonds payable 6120 Cash (680000*1.02) 693600 Dec 31, 2018 Interest expense 241400 Discount on bonds payable 3400 Interest payable (3400000*7%) 238000

Carrying value on Jan 1,2018 = 4039200-4080 = 4043280

Carrying value of 680000 = 4043280/4080000*680000 = 673880

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