Question
PR 11-3B The following transactions were completed by Montague Inc., whose fiscal year is the calender year: Year 1 July 1. Issued $55,000,000 of 10-year,9%
PR 11-3B
The following transactions were completed by Montague Inc., whose fiscal year is the calender year:
Year 1
July 1. Issued $55,000,000 of 10-year,9% callable bonds dated July 1, Year 1, at market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semitannually on December 31 and June 30.
Dec 31. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment .
31. Closed in interest expense account.
Year 2
June 30. Paid the semiannual interest on the bonds. The bond discount amortizatin of $390852 is combined with the semiannual interest payment.
Dec 31. Paid the semiannual interest on the bonds. The bond discount amortization of $390,852 is combined with the semiannual interest payment.
31. Closed the interest expernse account.
Year 3
June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)
Instructions
1. Journalize the entries to record the foregoing transactions.
2. Indicate the amount of the interest expernse in (A) Year 1 and (B) Year 2.
3. Determine the carrying amount of the bonds as December 31, Year 2.
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