Question
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Year 1 July 1 Issued $74,000,000 of 20-year, 11% callable
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
Year 1 | ||
July | 1 | Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, Year 1, at a market (effective) rate of 13%, receiving cash of $63,532,267. Interest is payable semiannually on December 31 and June 30. |
Oct. | 1 | Borrowed $200,000 by issuing a six-year, 6% installment note to Nicks Bank. The note requires annual payments of $40,673, with the first payment occurring on September 30, Year 2. |
Dec. | 31 | Accrued $3,000 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 $261,693 is combined with the semiannual interest payment. | |
Year 2 | ||
June | 30 | Paid the semiannual interest on the bonds. The bond discount amortization of $261,693 is combined with the semiannual interest payment. |
Sept. | 30 | Paid the annual payment on the note, which consisted of interest of $12,000 and principal of $28,673. |
Dec. | 31 | Accrued $2,570 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 $261,693 is combined with the semiannual interest payment. | |
Year 3 | ||
June | 30 | Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $9,420,961 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 $10,280 and principal of $30,393. |
Required:
1. | Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles. |
2. | Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2. |
3. | Determine the carrying amount of the bonds as of December 31, Year 2. |
Journal
1. Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. Refer to the Chart of Accounts for exact wording of account titles.
Year 1
PAGE 10
JOURNAL
ACCOUNTING EQUATION
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Year 2
PAGE 10
JOURNAL
ACCOUNTING EQUATION
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Year 3
PAGE 10
JOURNAL
ACCOUNTING EQUATION
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