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The following information is taken from Blue Corp.s balance sheet at December 31, 2016. Current liabilities Interest payable $ 97,500 Long-term liabilities Bonds payable (7%,
The following information is taken from Blue Corp.s balance sheet at December 31, 2016.
Current liabilities | ||||
Interest payable | $ 97,500 | |||
Long-term liabilities | ||||
Bonds payable (7%, due January 1, 2027) | $5,400,000 | |||
Less: Discount on bonds payable | 54,000 | 5,346,000 |
Interest is payable annually on January 1. The bonds are callable on any annual interest date. Blue uses straight-line amortization for any bond premium or discount. From December 31, 2016, the bonds will be outstanding for an additional 10 years (120 months).
(a) | Journalize the payment of bond interest on January 1, 2017. | |
(b) | Prepare the entry to amortize bond discount and to accrue the interest on December 31, 2017. | |
(c) | Assume on January 1, 2018, after paying interest, that Blue Corp. calls bonds having a face value of $900,000. The call price is 102. Record the redemption of the bonds. | |
(d) | Prepare the adjusting entry at December 31, 2018, to amortize bond discount and to accrue interest on the remaining bonds. |
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