1. On February 1, 2021, Kailua Corp. issued $800,000, 20 year, 9% bonds, with interest payable semi-annually on July 31 and January 31. At this time the market rate of interest was 10%. Kailua’s year end is December 31, and they use the effective interest method of amortizing bond premium or discount.

REQUIRED: SHOW ALL CALCULATIONS. ROUND ALL DOLLAR AMOUNTS TO THE NEAREST DOLLAR. ALL JOURNAL ENTRIES MUST BE IN GOOD FORM.

1. Calculate the selling price of the bonds.

2. Record the issuance of the bonds.

3. Record the first interest payment on July 31, 2021.

4. Record the adjusting entry required for this bond on December 31, 2021.

5. Prepare the Balance Sheet presentation for this bond at December 31, 2021.

6. Record the second interest payment on January 31, 2022. (Hint, at this point, calculate the balance in the Discount on Bonds Payable account)

7. After the interest payment was made on Jan 31, 2022, on the same day, Kailua purchased and retired 50% of this bond issue at 94.8. Record this transaction.

KEY FIGURES:

Jan 31, 2022 Interest Expense $ 6,099

Loss on Retirement of Bonds $12,936

2. On January 1, 2022, Kaneohe Corp. purchased new computer equipment under a capital lease arrangement with Kalakaua Corp. Kaneohe signed a $25,000 note, requiring five annual payments of $5,000 each, starting December 31, 2022. The interest rate for this type of financing is currently 11%.

Kaneohe will use straight-line amortization for this asset, with a five-year service life and no residual value.

REQUIRED: 

1. Record the capital lease on January 1, 2022.

2. Record amortization expense for the equipment for 2022

3. Record the first lease payment on December 31, 2022.

KEY FIGURE: Interest expense at Dec 31 - $2,033