Question

2. On February 1, 2019, Mojito, Inc, issued $1,000,000,6% bonds for $1,082,000. Interest is payable semiannually on January 31 and July 31 with the bonds maturing on February 1, 2029 (10-year bonds). The bonds are callable at 102 On February 1, 2020, Mojito retired $600,000 of the bonds at the call price. Required: a. Prepare the journal entry for the issuance of the bonds b. Prepare any required journal entries for interest payments on July 31, 2019 and January 31, 2020. Mojito uses straight-line amortization to amortize any discount or premium. c. Prepare the required entry to record the retirement of the bonds on February 1. 2020.

Answer 1

Answer with working is given below

Amortization schedule is also given for better understanding

Issue price Face value Premium Interest on Bond Amount $1,082,000 $1,000,000 $82,000 $30,000 ($1,000,000*6%/12*6)

Journal entries Bond issue Credit | Date February 1 2019 Debit $1,082,000 Account Titles and explanation Cash To Bond payable To Premium payable on bond (Being bonds issued) $1,000,000 $82,000 Credit First interest payment Date Account Titles and explanation July 31 2019 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $25,900 $4,100 $30,000 Credit Second interest payment Date | Account Titles and explanation January 31 2020 Interest Expense Premium payable on bond To Cash (Being interest paid on bond) Debit $25,900 $4,100 $30,000 Credit Redemption of Bond Account Titles and explanation February 1 2020 Bond payable Premium payable on bond To Cash To Gain on redemption of Bond (Being redemption of Bond) Debit $600,000 $44,280 $612,000 $32,280 Working notes: Bond value retired Unamortised balance of premium Carrying value of Bond Bond redemption value Gain on redemption of Bond $600,000 $44,280 (60% of $73,800) $644,280 $612,000 102% $32,280

Amortization Table Date Cash Interest Interest | Premium Expense Amortization January 1 2019 July 31 2019 January 31 2020 July 31 2020 January 31 2021 July 31 2021 January 31 2022 July 31 2022 January 31 2023 July 31 2023 January 31 2024 July 31 2024 January 31 2025 July 31 2025 January 31 2026 July 31 2026 January 31 2027 July 31 2027 January 31 2028 July 31 2028 January 2029 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $30,000 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $25,900 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 $4,100 Bond Premium Carrying Balance Amount $82,000 $1,082,000 $77,900 $1,077,900 $73,800 $1,073,800 $69,700 $1,069,700 $65,600 $1,065,600 $61,500 $1,061,500 $57,400 $1,057,400 $53,300 $1,053,300 $49,200 $1,049,200 $45,100 $1,045,100 $41,000 $1,041,000 $36,900 $1,036,900 $32,800 $1,032,800 $28,700 $1,028,700 $24,600 $1,024,600 $20,500 $1,020,500 $16,400 $1,016,400 $12,300 $1,012,300 $8,200 $1,008,200 $4,100 $1,004,100 $0 $1,000,000