Question

P10.5A  

(LO 3, 4), AP Malcolm Company sold $6,000,000, 7%, 15-year bonds on January 1, 2022. The bonds were dated January 1, 2022, and pay interest on December 31. The bonds were sold at 98.

Instructions

a.  

Prepare the journal entry to record the issuance of the bonds on January 1, 2022.

b.  

At December 31, 2022, $8,000 of the bond discount had been amortized. Show the long-term liability balance sheet presentation of the bond liability at December 31, 2022.

c.  

At January 1, 2024, when the carrying value of the bonds was $5,896,000, the company redeemed the bonds at 102. Record the redemption of the bonds assuming that interest for the year had already been paid.

Loss

$224,000

Answer 1

a) Journal entry

date	account and explanation	Debit	Credit
Jan 1,2022	Cash (6000000*.98)	5880000
	Discount on bonds payable	120000
	Bonds payable		6000000

b) Balance sheet

Long term liabilities
Bonds payable	6000000
Less: Discount on bonds payable	-112000	5888000

c) Journal entry

date	account and explanation	Debit	Credit
	Bonds payable	6000000
	Loss on redemption	224000
	Discount on bonds payable		104000
	Cash		6120000