Problem 2 (8 marks)

On 1 January 2018 Carlomagno Ltd issued $2,000,000, 9%, 10-year bonds at face value. The bonds pay interest on 30 June and 31 December. At 31 December 2019 Carlomagno Ltd redeemed the bonds at 102% of face value.

On 1 January 2019 Carlomagno Ltd issued $800,000, 8%, 10-year unsecured notes at face value. Interest is payable semi-annually on 1 July and 1 January.

Carlomagno's year-end is 31 December.

Required:

1. Prepare the journal entry for Carlomagno Ltd to record the issue of the bonds on 1 January 2018.

2. Prepare [all] journal entries related to the bonds and unsecured notes for 2019.

3. What is the total interest expense in 2019?

Solution:

A. Prepare the journal entry for Carlomagno Ltd to record the issue of the bonds on 1 January 2018.

B. Prepare [all] journal entries related to the bonds and unsecured notes for 2019.

C. Total interest expense in 2019: