Prepare journal entries to record the following retirement. (Show computations a
ID: 2495653 • Letter: P
Question
Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar.)
The December 31, 2014 balance sheet of Wolfe Co. included the following items:
7.5% bonds payable due December 31, 2022 $2,000,000
Unamortized discount on bonds payable 80,000
The bonds were issued on December 31, 2012 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization.)
On April 1, 2015, Wolfe retired $400,000 of these bonds at 101 plus accrued interest.
I know the solution however, how do you get "1/8" in the solution when calculating discount on bonds payable?
Solution 14-121
Interest Expense................................................................................ 8,000
Cash ($400,000 × 7.5% × 3/12)............................................. 7,500
Discount on Bonds Payable ($80,000 × 1/5 × 1/8 × 3/12)..... 500
Bonds Payable................................................................................... 400,000
Loss on Redemption of Bonds........................................................... 19,500
Discount on Bonds Payable [(1/5 × $80,000) – $500]........... 15,500
Cash....................................................................................... 404,000
Explanation / Answer
From December 2014 to December 2022 . 8 years .1/8 is one year out of 8 years.