PROBLEM 4 The Uran Company issued a 30000000 10year bond on

PROBLEM #4 The Uran Company issued a $30,000,000, 10-year bond on January 1 st of last year. The bond was sold at 109. The stated rate is 7% (compounded semi-annually) while the market rate was 6%. On May 1 st of this year, the company redeemed $2,000,000 worth of bonds at 107. REQUIRED: Journalize the entries to 1) issue the bonds on January 1 st 2) record the first bond interest payment and bond amortization on July 1 st, 3) record the second bond interest payment and bond amortization on December 31 st, and 4) redeem the bonds on May 1 st

Solution

Journal entry :

Date	account & explanation	debit	credit
Jan 1	Cash	32700000
	Bonds payable		30000000
	Premium on bonds payable		2700000
	(To record bond issue)
July 1	Interest expense	915000
	Premium on bonds payable (2700000/20)	135000
	Cash (30000000*7%*6/12)		1050000
	(To record first interest)
Dec 31	Interest expense	915000
	Premium on bonds payable	135000
	Cash		1050000
	(To record bond interest)
May 1	Bonds payable	2000000
	Premium on bonds payable	162000
	Gain on redemption of bonds		22000
	Cash		2140000
	(To record bond redeem)