Question

Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of J & J.:

On March 1, 2015 J & J issued $800,000 face value J & J. second mortgage, 8% bonds for $872,160, including accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing 10 years from December 1, 2014. The bonds are callable at 102. The bonds are dated Dec. 1, 2014. Amortization is calculated using straight-line.

On Aug. 1st, paid semiannual interest on J & J’s bonds.

On Feb.1st paid semiannual interest on J & J Co. bonds and purchased $400,000 face value bonds at the call price in accordance with the provisions of the bond indenture.

Answer 1

1-Mar	Cash	872,160
	Bond Payable		800,000
	Premium on bond payable		66,827
	Interest Expense ($800,000 × 8% × 1/12)		5333
Aug. 1st	Interest Expense	28631
	Premium on bond payable ($66827 × 6/119)	3369
	Cash 800000*8%*6/12		32000
	10years*12 months = 120 months - 1 month
Feb.1st	Interest Expense	28631
	Premium on Bonds Payable ($66827 × 6/119)	3369
	Cash		32000
	Bonds Payable	400000
	Premium on Bonds Payable	30044.5
	Gain on Redemption of Bonds		22045
	Cash		408000
	(66827-3369-3369)*1/2