Question

Pr. 14-129—Entries for bonds payable.

Prepare journal entries to record the following transactions relating to long-term bonds of Kirby, Inc. (Show computations.)

(a)   On June 1, 2017, Kirby, Inc. issued $8,000,000, 6% bonds for $7,841,000, which includes accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, 2027. The bonds are callable at 102.

(b)   On August 1, 2017, Kirby paid interest on the bonds and recorded amortization. Kirby uses straight-line amortization.

(c)   On February 1, 2019, Kirby paid interest and recorded amortization on all of the bonds, and purchased $5,000,000 of the bonds at the call price. Assume that a reversing entry was made on January 1, 2019.

Answer 1

Journal Entries:

Date	Particulars	Debit	Credit
a)	Cash	7,841,000
	Discount on Bonds Payable	319,000
	Bonds Payable		8,000,000
	Inerest Expense (800,000*4/12*6%)		160,000
b)	Interest Expense ($8,000,000* 6/12*6%)+$5,500)	245,500
	Cash		240,000
	Discount on Bonds Payable		5,500
c)	Interest Expense ($240,000 + $16,500)	256,500
	Cash		240,000
	Discount on Bonds Payable  ($319,000 * 6/116)		16,500
	Bonds Payable	5,000,000
	Loss on Redemption of Bonds	265,000
	Discount on Bonds Payable [0.625 * ($319,000 – $55,000)]		165,000
	Cash		5,100,000