July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, at a market (effective rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30. October 1. Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank. The note requires annual payments of $40,673, with the first payment occurring on September 30, 2017. December 31. Accrued $3,000 of interest on the installment note. The interest is payable on the date of the next installment note payment.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
The following transactions were completed by Winklevoss Inc., whose fiscal
year is the calendar year:
2016
July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1,
2016, at a market (effective rate of 13%, receiving cash of $63,532,267.
Interest is payable semiannually on December 31 and June 30.
October 1. Borrowed $200,000 by issuing a six-year, 6% installment note to
Nicks Bank. The note requires annual payments of $40,673, with the first
payment occurring on September 30, 2017.
December 31. Accrued $3,000 of interest on the installment note. The
interest is payable on the date of the next installment note payment.
December 31. Paid the semiannual interest on the bonds. The bond discount
amortization of $261,693 is combined with the semiannual interest payment.
Retrieved from:
Warren, C. S., Reeve, J. M., & Duchac, J. (2016). Accounting (26 ed.). Boston, MA: Cengage Learning.
December 31. Closed the interest expense account.
2017
June 30. Paid the semiannual interest on the bonds. The bond discount
amortization of $261,693 is combined with the semiannual interest payment.
September 30. Paid the annual payment on the note, which consisted of
interest of $12,000 and principal of $28,673.
December 31. Accrued $2,570 of interest on the installment note. The
interest is payable on the date of the next installment note payment.
December 31. Paid the semiannual interest on the bonds. The bond discount
amortization of $261,693 is combined with the semiannual interest payment.
December 31. Closed the interest expense account.
2018
June 30. Recorded the redemption of the bonds, which were called at 98.
The balance in the bond discount account is $9,420,961 after payment of
interest and amortization of discount have been recorded. (Record the
redemption only.)
September 30. Paid the second annual payment on the note, which
consisted of interest of $10,280 and principal of $30,393.
Instructions
1. Journalize the entries to record the foregoing transactions. Round all
amounts to the nearest dollar.
2. Indicate the amount of the interest expense in (a) 2016 and (b) 2017.
3. Determine the carrying amount of the bonds as of December 41, 2017.
Transcribed Image Text:The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: 2016 July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, at a market (effective rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30. October 1. Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank. The note requires annual payments of $40,673, with the first payment occurring on September 30, 2017. December 31. Accrued $3,000 of interest on the installment note. The interest is payable on the date of the next installment note payment. December 31. Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. Retrieved from: Warren, C. S., Reeve, J. M., & Duchac, J. (2016). Accounting (26 ed.). Boston, MA: Cengage Learning. December 31. Closed the interest expense account. 2017 June 30. Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. September 30. Paid the annual payment on the note, which consisted of interest of $12,000 and principal of $28,673. December 31. Accrued $2,570 of interest on the installment note. The interest is payable on the date of the next installment note payment. December 31. Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. December 31. Closed the interest expense account. 2018 June 30. Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 after payment of interest and amortization of discount have been recorded. (Record the redemption only.) September 30. Paid the second annual payment on the note, which consisted of interest of $10,280 and principal of $30,393. Instructions 1. Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. 2. Indicate the amount of the interest expense in (a) 2016 and (b) 2017. 3. Determine the carrying amount of the bonds as of December 41, 2017.
Expert Solution
Step 1
DATE PARTICULARS  DEBIT CREDIT
Year 1 Cash  63,532,267  
JULY 1

Discount on bonds payable 

($74000000 - $63532267)

10,467,733  
  Bonds payable   74,000,000
  (To record the issue of bonds at discount)    
       
DEC 31 Interest expense 4330693  
  Discount on bonds payable    261693
  Cash($74000000 *11%81/2)   4070000
  (To record the payment of semi annual interest and amortization of discount)    
       
DEC 31 Income summary 4331693  
  Income expense   4331693
  (To close the interest expense account)    
       
YEAR 2      
30 JUN Interest expense  4331693  
  Discount on bonds payable   261693
  Cash ($74000000*11%*1/2   4070000
  (To record the payment of semi- annual interest and amortization of discount)    
       
31 DEC Interest expense  4331693  
  Discount on bonds payable   261693
  Cash ($74000000*11%*1/2   4070000
  (To record the payment of semi- annual interest and amortization of discount)    
       
31 DEC Interest summary 8663386  
  Interest expense    8663386
  (To close the interest expense account)    
       
YEAR 3      
30 JUN Bonds payable 74,000,000  
  Loss on redemption 7,940,961  
  Discount on bonds payable   9,420,961
  Cash   72,520,000
  (To record the redemption of bonds payable and loss redemption)    
       
       
       
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Accounting for Notes
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education