Question
Twilight Corp desired to raise cash to fund its expansion by issuing long-term bonds. The corporation hired an investment banker to manage the issue (best
Twilight Corp desired to raise cash to fund its expansion by issuing long-term bonds. The corporation hired an investment banker to manage the issue (best efforts underwriting) and also hired services of a lawyer, an audit firm, ect. On June 1, 2015, Twilight sold $500,000 in long-term bonds. The bonds will mature in 10 years and have a stated interest rate of 8%. The market rate was 10%. The bonds pay interest semi-annually on May 31 and November 30. The bonds are to be accounted for using the effective interest method. On June 1, 2017, twilight decided to retire 20% of the bonds, at that time the bonds were selling at 98.
Required:
- Prepare the journal entry for the issuance of the bonds on June 1, 2015.
- What was the interest expense related to these bonds that would be reported on Twilights calendar year 2015 income statement?
- Prepare all entries related to bonds after June 1 and up to and including December 31, 2015
- Calculate the gain or loss on the partial retirement of the bonds on June 1, 2017 and prepare the journal entry to record the partial retirement.
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