The following is taken from the McGovern Company balance sheet.

Interest is payable semiannually on January 1 and July l.The bonds are callable on any semiannual interest date. McGovern uses straight-line amortization for any bond premium or discount.
From December 31, 2006. the bonds will be outstanding for an additional 10 years (120 months).
Instructions

(a) Journalize the payment of bond interest on January 1, 2007

(b) Prepare the entry to amortize bond premium and to pay the interest due on July 1, 2007, assuming no accrual of interest on June 30.

(c) Assume that on July 1, 2007, after paying interest, McGovern Company calls bonds having a face value of $ 1 ,800,000. The call price is 101. Record the redemption of the bonds.

(d) Prepare the adjusting entry at December 31, 2007, to amortize bond premium and to accrue interest on the remaining bonds.

Transcribed Image Text:

Current liabilities MCGOVERN COMPANY Balance Sheet (partial) December 31, 2006 Bond interest payable (for 6 months from July 1 to December 31) Long-term liabilities Bonds payable, 8% due January 1, 2017 Add: Premium on bonds payable $3,000,000 $ 120,000 200,000 $3,200,000