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Entries for Bonds Payable and Installment Note Transactions

The following transactions were completed by Montague Inc., whose fiscal year is the calendar year:

Year 1
July 1.	Issued $1,780,000 of five-year, 11% callable bonds dated July 1, Year 1, at a market (effective) rate of 12%, receiving cash of $1,714,497. Interest is payable semiannually on December 31 and June 30.
Oct. 1.	Borrowed $120,000 as a 10-year, 7% installment note from Intexicon Bank. The note requires annual payments of $17,085, with the first payment occurring on September 30, Year 2.
Dec. 31.	Accrued $2,100 of interest on the installment note. The interest is payable on the date of the next installment note payment.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $6,551 is combined with the semiannual interest payment.
Year 2
June 30.	Paid the semiannual interest on the bonds. The bond discount amortization of $6,551 is combined with the semiannual interest payment.
Sept. 30.	Paid the annual payment on the note, which consisted of interest of $8,400 and principal of $8,685.
Dec. 31.	Accrued $1,948 of interest on the installment note. The interest is payable on the date of the next installment note payment.
Dec. 31.	Paid the semiannual interest on the bonds. The bond discount amortization of $6,551 is combined with the semiannual interest payment.
Year 3
June 30.	Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $39,301 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)
Sept. 30.	Paid the second annual payment on the note, which consisted of interest of $7,792 and principal of $9,293.

Required:

1. Journalize the entries to record the foregoing transactions. For compound transactions, if an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

Date	Account	Debit	Credit
Year 1
July 1
Oct. 1
Dec. 31-Note
Dec. 31-Bond
Year 2
June 30
Sept. 30
Dec. 31-Note
Dec. 31-Bond
Year 3
June 30
Sept. 30

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Answer 1

• All working forms part of the answer
• Requirement 1

Date	Account	Debit	Credit
Year 1
Jul-01	Cash	$                  17,14,497.00
	Discount on Bonds payable	$                        65,503.00
	Bonds Payable		$                         17,80,000.00
Oct. 1	Cash	$                    1,20,000.00
	Notes payable		$                           1,20,000.00
Dec. 31-Note	Interest expense	$                          2,100.00
	interest payable		$                                 2,100.00
Dec. 31-Bond	Interest expense	$                    1,04,451.00
	Discount on Bonds payable		$                                 6,551.00
	Cash		$                               97,900.00
Year 2
Jun-30	Interest expense	$                    1,04,451.00
	Discount on Bonds payable		$                                 6,551.00
	Cash		$                               97,900.00
Sept. 30	Interest expense	$                          6,300.00
	Interest payable	$                          2,100.00
	Notes Payable	$                          8,685.00
	Cash		$                               17,085.00
Dec. 31-Note	Interest expense	$                          1,948.00
	interest payable		$                                 1,948.00
Dec. 31-Bond	Interest expense	$                    1,04,451.00
	Discount on Bonds payable		$                                 6,551.00
	Cash		$                               97,900.00
Year 3
Jun-30	Bonds Payable	$                  17,80,000.00
	Loss on redemption of bond	$                          3,701.00
	Discount on Bonds payable		$                               39,301.00
	Cash		$                         17,44,400.00
Sept. 30	Interest expense	$                          5,844.00
	Interest payable	$                          1,948.00
	Notes Payable	$                          9,293.00
	Cash		$                               17,085.00

• Requirement 2

	Year 1	Year 2
on Bonds payable
Jun-30		$                    1,04,451.00
Dec-31	$                       1,04,451.00	$                    1,04,451.00
on Notes payable
Sep-30		$                          6,300.00
Dec-31	$                             2,100.00	$                          1,948.00
Total Interest expense	$                       1,06,551.00	$                    2,17,150.00

• Requirement 3

Carrying amount of Bonds payable
on issued date	$                   17,14,497.00
Year 1 Dec 31 Discount amortised	$                            6,551.00
Year 2 Jun 30 Dicount amortised	$                            6,551.00
Year 2 Dec 31 Discount amortised	$                            6,551.00
Carrying amount on Dec 31, Year 2	$                   17,34,150.00