Assume that on July 1, 2019, Novak Co. redeems half of the bonds at a cost of $1

Question

Assume that on July 1, 2019, Novak Co. redeems half of the bonds at a cost of $1,126,600 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to o decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit July 1, 2019 Interest Expense 123,757 Premium on Bonds Payable 4,644 Interest Payable 128.400 To record interest) July 1, 2019 Bonds Payable Interest Payable Loss on Disposal of Land (To record reacquisition)

Explanation / Answer

Solution:

Issue price of bond = Present value of interest and principal discounted at 11%

= ($2,140,000*12%) * Cumulative PV factor at 11% for 10 periods + $2,140,000 * PV factor at 11% for 10th period

= $256,800 * 5.889232 + $2,140,000 * 0.352184 = $2,266,030

Amortization table for bond on the date of issue Annual interest period Interest to be paid Interest expense to be recorded Premium amortization Unamortized premium Bond Carrying value Issue date $126,030 $2,266,030 1 $256,800 $249,263 $7,537 $118,493 $2,258,493 2 $256,800 $248,434 $8,366 $110,128 $2,250,128 3 $256,800 $247,514 $9,286 $100,842 $2,240,842 4 $256,800 $246,493 $10,307 $90,534 $2,230,534 5 $256,800 $245,359 $11,441 $79,093 $2,219,093 6 $256,800 $244,100 $12,700 $66,393 $2,206,393 7 $256,800 $242,703 $14,097 $52,296 $2,192,296 8 $256,800 $241,153 $15,647 $36,649 $2,176,649 9 $256,800 $239,431 $17,369 $19,280 $2,159,280 10 $256,800 $237,521 $19,279 $1 $2,140,001

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