Question 9: Prepare the necessary journal entries to record the following transa
ID: 2420251 • Letter: Q
Question
Question 9: Prepare the necessary journal entries to record the following transactions relating to the long-term issuance of bonds of Sloan Co.:
March 1:
Issued $600,000 face value Sloan Co. second mortgage, 8% bonds for $654,120, including accrued interest. Interest is payable semiannually on December 1 and June 1 with the bonds maturing 10 years from this past December 1. The bonds are callable at 102.
June 1:
Paid semiannual interest on Sloan Co. bonds. (Use straight-line amortization of any premium or discount.)
December 1:
Paid semiannual interest on Sloan Co. bonds and purchased $300,000 face value bonds at the call price in accordance with the provisions of the bond indenture.
Explanation / Answer
Sloan Co Details Amt $ Bond Par value 600,000 Bond Issue price 654,120 Accrued Interest @8% for 90 days 12,000 Bond Premium 42,120 Maturity in years 10 No of half years in maturity 20 Premium amortization per half year 2,106 Interest payable half yearly @4% 24,000 Journal Entry Date Account Title Dr $ Cr $ Mar 1. Cash 654,120 Bond Payable 600,000 Premium on Bond 42,120 Accrued Interest payable 12,000 Jun1. Cash 24,000 Accrued Interest payable 12,000 Premium on Bond 2,106 Interest Expense 9,894 Dec 1. Cash 24,000 Premium on Bond 2,106 Interest Expense 21,894 Cararying Value of Bond as on Dec 31. Bond face value 600,000 Bond Premium 42,120 Less premuim amortised 4,212 Carrying value 637,908 Carrying value for 300000 face value = =318954 Redemption value =300000*1.02 =306000 Gain on redemption = 12,594 Journal Entry Date Account Title Dr $ Cr $ Dec 31. Cash 306,000 Bond payable 300,000 Premium on Bond 18,594 Gain on bond redemption 12,594