Question

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $33,100,000 of 20-year, 4% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Journalize the entries to record the following selected transactions. Be sure to include the year in the date for the entries recording the issue and calling of the bonds. Refer to the Chart of Accounts for exact wording of account titles.

20Y1
May	1	Issued the bonds for cash at their face amount.
Nov.	1	Paid the interest on the bonds.
20Y5
Nov.	1	Called the bond issue at 98, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Answer 1

Journal entries:

Date	Account title	Debit	Credit
20Y1, may 1	cash Bonds payable	$33,100,000 .	. $33,100,000
20Y1, nov 1	interest expense ($33,100,000 x 4% x (6/12) Cash	$662,000 .	. $662,000
20Y5, nov 1	bonds payable Cash ($33,100,000 x 0.98) Gain on retirement of bond	$33,100,000 . .	. $32,438,000 $662,000