Question

Cupola Fan Corporation issued 8%, $590,000, 10-year bonds for $561,000 on June 30, 2018. Debt issue...

Cupola Fan Corporation issued 8%, $590,000, 10-year bonds for $561,000 on June 30, 2018. Debt issue costs were $3,400. Interest is paid semiannually on December 31 and June 30. One year from the issue date (July 1, 2019), the corporation exercised its call privilege and retired the bonds for $565,000. The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.

Required:
1. to 4.
Prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2018 & 2019, and the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Homework Answers

Answer #1
No Date General Journal Debit Credit
1 June 30, 2018 Cash 557,600
Discount & Debt issue costs 32,400
Bonds Payable 590,000
2 December 31, 2018 Interest Expense 25,220
Discount & Debt issue costs 1,620
Cash 23,600
3 June 30, 2019 Interest Expense 25,220
Discount & Debt issue costs 1,620
Cash 23,600
4 July 01, 2019 Bonds Payable 590,000
Loss on early extinguishment 4,160
Discount & Debt issue costs 29,160
Cash 565,000

Workings:

1. Issuance of bonds: Cash = $561,000 - $3,400 = $557,600

Discount & Debt issues costs = $590,000 - $561,000 + $3,400 = $32,400

2 & 3. Interest expense = $1,620 + $23,600 = $25,220

Discount & Debt issue costs = $32,400 / 20 = $1,620

Cash = 4% x $590,000 = $23,600

4.Discount & Debt issue costs = 9/10 x ($590,000 - $561,000 + $3400) = $29,160

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