Question

Exercise #1:

            On January 1, 2017, Sportswear Company issued 200 of its 9%, $1,000 bonds at par. The bonds are dated January 1, 2017, and mature January 1, 2027. Interest is payable every June 1 and December 31. Sportswear paid bond issue costs of $10,000.

(a) Journalize the January 1, 2017 transaction.

2. Prepare the proper journal entry or entries for June 1, 2017.

3. Prepare the proper journal entry or entries for December 31, 2017.

Exercise #2:

Hurst, Incorporated sold its 8% bonds with a maturity value of $9,000,000 on August 1, 2016 for $8,838,000. At the time of the sale the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2018. On February 1, 2019, Hurst begins reacquired its 8% bonds at 101. Hurst uses the straight-line method of amortization. Journalize the reacquisition. Show all calculations.

Exercise #3:

            Eddy Co. is indebted to Cole under a $1,000,000, 12%, three-year note dated
December 31, 2016. Because of Eddy's financial difficulties developing in 2018, Eddy owed accrued interest of $120,000 on the note at December 31, 2018. Under a troubled debt restructuring, on December 31, 2018, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of $900,000. Eddy's acquisition cost of the land is $725,000. Journalize this transaction for Eddy Co. and Cole. Show all calculations.

Answer 1

Exercise #1:

Date	Description	Dr. ($)	Cr. ($)
01-Jan-17	Cash (200000 - 10000)	190000.00
	Bond Issue Expenses	10000.00
	Bonds Payable (200*1000)		200000.00
	(Bonds Issued)
01-Jun-17	Interest Expense	7916.67
	Bond Issue Expenses (10000*5/120)		416.67
	Cash (200000*9%*5/12)		7500.00
	(Interest expense on June 1, 2017)
31-Dec-17	Interest Expense	11083.33
	Bond Issue Expenses (10000*7/120)		583.33
	Cash (200000*9%*7/12)		10500.00
	(Interest expense on December 31, 2017)