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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.
Dec. 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.
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.
Dec. 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.
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.)

Required:

1. Journalize the entries to record the 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) Year 1 and (b) Year 2.
3. Determine the carrying amount of the bonds as of December 31, Year 2.

Journal

1a. Journalize the entries to record the Year 1 transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

7

8

1b. Journalize the entries to record the Year 2 transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 11

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

5

6

7

8

1c. Journalize the entries to record the Year 3 transactions. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 12

JOURNAL

ACCOUNTING EQUATION

DATE DESCRIPTION POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY

1

2

3

4

Final Questions

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

Year 1:
Year 2:

3. Determine the carrying amount of the bonds as of December 31, Year 2.

Please answer in filling in the blanks.

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