Question

Titania Co. sells $600,000 of 12% bonds on April 1, 2018. The bonds pay interest on October 1 and April 1. The due date of the bonds is April 1, 2023. The bonds yield 10%, selling for $638,780. On July 1, 2019, Titania buys back $500,000 worth of bonds for $515,000 . Prepare journal entries through July 1, 2019.

1. Prepare the journal entries on April 1, 2018. (3%)

2. Prepare the Interest Expense and amortization entries on October 1, 2018.    

  (2%)

3. Prepare the adjusting entries on December 31, 2018.

4. Prepare the Interest Expense and amortization entries on April 1, 2019.

5. Prepare all the related journal entries on July 1, 2019 for the early

  Extinguishment of the Bonds.

Answer 1

	Particulars	Dr	Cr
	Cash	638780
	Bonds Payable		638780
	Interest Expense(638780*.05)	31939
	Bonds payable	4061
	Cash(600000*.06)		36000
	Interest Expense(638780-4061)*.05*1/6	5289
	Bonds payable	711
	Interest Payable(36000*1/6)		6000
	Interest Expense(638780*.05)	31939
	Bonds payable	4061
	Cash(600000*.06)		36000
	Interest Expense(634719-711-3553)*.5*.05*4/6	10508
	Bonds payable	1492
	Cash(300000*.06*4/6)		12000
	Bonds Payable	313736
	Gain on Extinguishment of bonds (see note)		10736
	Cash		303000

Note -

Reacquisition price = 315000-(300000*6%*4/6) = $303000

Net carrying amount of bonds redeemed = (630455*0.5)-1492 = $313736

Gain on extinguishmnet = 313736-303000 = $ 10736