Question
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: 2016 July 1 Issued $74,000,000 of 20-year, 11% callable bonds
The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:
2016
July 1 Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, 2016, 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, 2017.
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.
31 Closed the interest expense account.
2017
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.
31 Closed the interest expense account.
2018
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. Be sure to include the year in the date for the entries. Refer to the Chart of Accounts for exact wording of account titles.
2. Indicate the amount of the interest expense in (a) 2016 and (b) 2017.
3. Determine the carrying amount of the bonds as of December 31, 2017.
CHART OF ACCOUNTS
Winklevoss Inc.
ASSETS
110Cash
111Petty Cash
121Accounts Receivable
122Allowance for Doubtful Accounts
126Interest Receivable
127Notes Receivable
131Merchandise Inventory
141Office Supplies
142Store Supplies
151Prepaid Insurance
191Land
192Store Equipment
193Accumulated Depreciation-Store Equipment
194Office Equipment
195Accumulated Depreciation-Office Equipment
LIABILITIES
210Accounts Payable
221Salaries Payable
231Sales Tax Payable
232Interest Payable
241Notes Payable
251Bonds Payable
252Discount on Bonds Payable
253Premium on Bonds Payable
EQUITY
311Common Stock
312Paid-In Capital in Excess of Par-Common Stock
315Treasury Stock
321Preferred Stock
322Paid-In Capital in Excess of Par-Preferred Stock
331Paid-In Capital from Sale of Treasury Stock
340Retained Earnings
351Cash Dividends
352Stock Dividends
390Income Summary
REVENUE
410Sales
610Interest Revenue
611Gain on Redemption of Bonds
EXPENSES
510Cost of Merchandise Sold
515Credit Card Expense
516Cash Short and Over
521Sales Salaries Expense
522Office Salaries Expense
531Advertising Expense
532Delivery Expense
533Repairs Expense
534Selling Expenses
535Rent Expense
536Insurance Expense
537Office Supplies Expense
538Store Supplies Expense
541Bad Debt Expense
561Depreciation Expense-Store Equipment
562Depreciation Expense-Office Equipment
590Miscellaneous Expense
710Interest Expense
711Loss on Redemption of Bonds
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