Question

Presented below are selected transactions on the books of Bridgeport Corporation. May 1, 2017 Bonds payable with a par value of $986,400, which are dated January 1, 2017, are sold at 107 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2027. (Use interest expense account for accrued interest.) Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.) Jan. 1, 2018 Interest on the bonds is paid. April 1 Bonds with par value of $394,560 are called at 101 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.) Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized. Prepare journal entries for the transactions above.

Answer 1

Answer:
Date	Description	Debit($)	Credit($)
May 1, 2017	Cash	1094904
	Bond payable		986400
	Premium on bond payable		69048
				Interest expenses		39456
	(986400*12%*4/12)
	(To record the sale of bond)
	Dec 31, 2017	Interest expense
78912 (986400*12%*8/12)
	Interest payable		78912
	(Interest accrued)
		4762 (69048*8month/116 month)
	Interest expense		4762
	(To record amortisation of premium)
Jan 1, 2018	Interest payable	78912
	Cash		78912
	(Interest paid)
April 1, 2018	Bonds payable	394560
	Premium on bond payable	25218
		(69048*394560/986400*105/116)
	Interest expense	11837
		(394560*12%*3/12)
	Cash		414288 (394560*101%+11837)
	Gain on redemption		17327
	(Bond redeemed)
Dec 31, 2018	Interest expense	82858
		(690480*0.12)
	Interest payable		82858
	(interest accrued)