Question

FINANCIAL ACCOUNTING II Effective April 1, 2016, The Syracuse Corporation, which has a year- end of December 31st, authorized $1,500,000 of callable, mortgage bonds (secured by $2,200,000 of property and equipment, at market value). The bonds paid interest at a rate of eight percent per year and had a term of six years. Interest was payable each September 30th and March 31st cured by $2,200.000 authorized $1,500,000 oration, which has a yea On July 1, 2017, Syracuse issued 1,000 of the bonds in exchange for cash in the total amount of $906,000. On October 1, 2019, Syracuse called the bonds and paid the current bondholders $1,150,000 in cash. Prepare the journal entries related to the bonds that the corporation entered into its records during the period April 1, 2016 through December 31, 2017 In addition, prepare the journal entry that was recorded when the bonds were redeemed in October 2019.

Answer 1

Answer :

Date	Accounts Titles and Explanation	Debit	Credit
April 1.2016	No Journal entry is required
July 1.2017	Cash	$906,000
	Discount on bonds payable (1000000 - 906000)	$94,000
	Bonds payable		$1,000,000
	(To record issue of bonds for cash $906000 and discount on bonds
Sept 30.2017	Interest expense (20000+3917) (Working note 1)	$23,917
	Discount on bonds payable Working note 2)		$3,917
	Interest payable		$20,000
	(To record interest paid and discount amortized)
Dec 31.2017	Interest expense (20000+3917)	$23,917
	Discount on bonds payable		$3,917
	Interest payable		$20,000
	(To record interest accrued and discount amortized)
Oct.2.2019	Bounds payable	$1,000,000
	Loss on early extinguishment of bonds	$208,750
	Discount on bonds payable Working note 3		$58,750
	Cash		$1,150,000
	(To record redemption of bonds and discount unamortized)

Working Note :

1. Interest Expense

(100000*8%)*3/12 =$20,000

2. Discount on bonds payable

94000/(72 months)*3 = $3,917

3. Discount on bonds payable (Unamortized amount )

Discount on bonds payable was amortized for 27 months, (July 1 2017 to Oct 1.2019)

remaining was unamortized

= 94000 -(94000/72)*27

= 94000 -35250

= $58,750