Question

The ABC Corporation’s fiscal year ends on December 31st. On July 1, 2016, ABC authorized $1,000,000 of six-percent, eight-year, callable debentures, scheduled to pay interest annually on each June 30th. On November 30, 2017, ABC issued half of the bonds, at a premium of $27,650, in return for both cash and a building that had a fair value of $250,000. All interest accrued to the issuance date was also paid in cash by the lender. On March 1, ABC paid all interest due to date and then (i) called one-half of the bonds, paying each investor $1,200 for each bond held, and (ii) converted the remaining bonds into 2,000 shares of ABC'S $100 par value preferred stock. Although you may wish to understand all the journal entries made from the authorization date to redemption of The ABC Corporation’s bonds, provide only the journal entries related to the bonds on July 1, 2016, November 30, 2017, and March 1, 2019.

Answer 1

Answer :

Preparing journal entries for July 1st,2016, Nov 30,17 and March 1,2019

1st July 2016 : No journal entry needs to get passed as on issuance of bonds happend. There is no need of journal entry in case of authorized bond

Nov 30.2017

Account title	Debit	Credit
Cash	277650
Building	250000
To Bonds payable		500000
To Premium on bonds		27650

March 01.2019 :

Account title	Debit	Credit
Interest	25514
Premium amortization	1152
To Cash (Interest paid)		26666

Bonds payable	500000
Unamortized premium (13375 - 4320)	18110
To Cash		300000
To Preferred stock		200000
To Gain on retirment of bonds		18110