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Entries for Bonds Payable and Installment Note Transactions The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Year 1
Entries for Bonds Payable and Installment Note Transactions
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
Year 1 | |
July1. | Issued $3,370,000 of five-year, 7% callable bonds dated July 1, Year 1, at a market (effective) rate of 9%, receiving cash of $3,103,340. Interest is payable semiannually on December 31 and June 30. |
Oct.1. | Borrowed $120,000 by issuing a 10-year, 7% installment note to Nicks Bank. The note requires annual payments of $17,085, with the first payment occurring on September 30, Year 2. |
Dec.31. | Accrued $2,100 of interest on the installment note. The interest is payable on the date of the next installment note payment. |
31. | Paid the semiannual interest on the bonds. The bond discount amortization of $26,666 is combined with the semiannual interest payment. |
Year 2 | |
June30. | Paid the semiannual interest on the bonds. The bond discount amortization of $26,666 is combined with the semiannual interest payment. |
Sept.30. | Paid the annual payment on the note, which consisted of interest of $8,400 and principal of $8,685. |
Dec.31. | Accrued $1,948 of interest on the installment note. The interest is payable on the date of the next installment note payment. |
31. | Paid the semiannual interest on the bonds. The bond discount amortization of $26,666 is combined with the semiannual interest payment. |
Year 3 | |
June30. | Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $159,996 after payment of interest and amortization of discount have been recorded. Record the redemption only. |
Sept.30. | Paid the second annual payment on the note, which consisted of interest of $7,792 and principal of $9,293. |
Required:
Round all amounts to the nearest dollar.
1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank.
Year 1 | |||
July 1 | |||
Oct. 1 | |||
Dec. 31-Note | |||
Dec. 31-Bond | |||
Year 2 | |||
June 30 | |||
Sept. 30 | |||
Dec. 31-Note | |||
Dec. 31-Bond | |||
Year 3 | |||
June 30 | |||
Sept. 30 | |||
2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.
a. Year 1 b. Year 2
3. Determine the carrying amount of the bonds as of December 31, Year 2.
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