Prepare journal entries to record the following transactions relating to long-te
ID: 2420252 • Letter: P
Question
Prepare journal entries to record the following transactions relating to long-term bonds of Flynn, Inc. (Show computations.)
(a) On June 1, 2004, Flynn, Inc. issued $800,000, 6% bonds for $783,520, which includes accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, 2014. The bonds are callable at 102.
(b)On August 1, 2004, Flynn paid interest on the bonds and recorded amortization. Flynn uses straight-line amortization.
(c) On February 1, 2006, Flynn paid interest and recorded amortization on all of the bonds, and purchased $480,000 of the bonds at the call price. Assume that a reversing entry was made on January 1, 2006.
Explanation / Answer
1-Jun-04
Date Entry Debit Credit Remarks1-Jun-04
Cash A/c Dr $783,520.00 Discount on issue of bonds a/c Dr $32,480.00 800000-(783520-16000) To 6% Bonds a/c Cr $800,000.00 32480 To Interest payable on bonds a/c Dr $16,000.00 (Being issue of bonds issued with accrued interest is recorded in the books) 1-Aug-04 Interest expense a/c Dr $9,624.00 ((800000*6%)/12)*2+1624 Interest payable on bonds a/c Dr $16,000.00 Is the accured interest that is being reversed here To Discount on bonds payable a/c Cr $1,624.00 32480/20 (10 years * 2 (as the interest is paid semi annual) To Cash a/c Cr $24,000.00 (Being interest paid and discount on bonds ammortized) 1-Feb-06 Interest expense a/c Dr $25,624.00 To Discount on issue of bonds $1,624.00 To Cash A/c Dr $24,000.00 (Being interest paid on the bonds) 1-Feb-06 Bonds payable a/c Dr $480,000.00 Face value of the bonds being redeemed Loss on redemption of bonds a/c Dr $25,190.40 Discount relevant to bonds being redeemed i.e.,15590.4+ Loss on redemption ie., $2 being paid in excess of face value ie., 4800*2 To Discount on issue of bonds a/c Cr 15590.4 (((480000/800000)*32480)/20)*16. 60% of the bonds are redeemed. So, the remaining discount on the bonds being redeemed is to be reversed and the same is to be considered as loss To Cash a/c Cr $489,600.00 (480000/100)*102 (Being part of bonds redeemed at callable price of 102)