Glen Avon Inc specializes in the production of telecommunica

Glen Avon Inc. specializes in the production of telecommunication satellites. The company has

a 6-month fiscal end on December 31 and June 30. In 2004 the company decides to expand their

operations and finances it by issuing 4,000 bonds at a 14% coupon rate (annual). The bonds pay

interest on October 31 and April 30, and are due on April 30, 2019.

a. (3 points) Assuming the bonds are issued on April 30, 2004 at 104, record the journal

entry(ies) for the issue.

b. (5 points) Record the proper adjusting entry(ies) for the 6-month fiscal end on June 30, 2004.

c. (4 points) Record the interest payment on October 31, 2014.

d. (8 points) On November 30, 2014, the company purchases 90 percent of the bonds back at

110 plus accrued interest. Record the proper journal entry(ies) for the repurchase.

On November 30,2014(D) What amount should be debited for premium on bonds payable when you are repurchasing the bonds to take the premium account off of the books?

Solution

General Journal Dr Cr Ans a Cash (4000*104) 4160000 April 30 2014 Bonds Payable (4000*1000) 4000000 Premium on Bonds Payable (4000*40) 160000 (being bonds issued at premium) ans b June 30 2014 Interest expenses ( 91556 Premium on Bonds Payable(533*2/6) 1778 Interest payable (4000000*14%*2/12) 93333 (using straight line method of amortization of premium) No of period=15*2=30 So amortization for every six months 160000/30 5333 ans c Interest payable 93333 Oct 31 2014 Interest expenses 183111 Premium on Bonds Payable(5333*4/6) 3555 Cash (4000000*14%*6/12) 280000 ans d 30-Nov Interest expenses ( 45778 Premium on Bonds Payable(5333*1/6) 889 Interest payable (4000000*14%*21/12) 46667 Bonds Payable (4000*1000*90%) 3600000 Premium on Bonds Payable 138400 Interest payable 46667 GAin on redemptin of bonds (bal fig) 138400 Cash (3600*110)+4667 3646667 working Premium on Bonds Payable 160000*90% 144000 Premium amortized till Nov 30 5600 (5333*90%)+(5333*1/6*90%) 138400 ans e Premium on Bonds Payable 138400