Homework SourseGlen 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.
Solution
Let The par value be $ 1000 .So ISsue price will be 1000*104/100 = 1040
Number of years = April 2019-April 2004 = 15 years
Per Year amortisation of premium : 160,000/15 = 10666.67 per year
**30Nov : Balance in Premium on bond payable:160000-1778-3556-800=153866
| Date | Acount | Debit | credit |
| April 30,2014 | cash [4000*1040] | 4160000 | |
| Premium on Bond payable | 160000 | ||
| Bond payable [4000*1000] | 4000000 | ||
| [Being Bond issued at premium ] | |||
| June30,2004 | Interest expense | 91555 | |
| Premium on Bond payable [10666.67*2/12] | 1778 | ||
| Interest payable [4,000,000*.14*2/12] | 93,333 | ||
| [Being Interest accrued for 2 months 1May -30 June] | |||
| October 31 2014 | Interest expense | 183111 | |
| Interest payable | 93,333 | ||
| Premium on bond payable [10666.67*4/12] | 3556 | ||
| cash [4,000,000*.14*6/12] | 280000 | ||
| [Being interest accrued for 4 months( 1july-31oct) and paid for 1semiannual month] | |||
| Nov 30,2014 | |||
| a | Interest expense | 41200 | |
| Premium on bond payable [10666.67*1/12*.90] | 800 | ||
| Interest payable [4000000*.14*1/12*.90] | 42000 | ||
| [Being interest accrued on 90 % bond for one month 1 nov-30 nov] | |||
| B | Bond payable [4,000,000*.90] | 3,600,000 | |
| Premium on Bond payable [153866*.90] | 138479 | ||
| Interest payable | 42000 | ||
| Loss on Repurchase of bond | 661521 | ||
| cash [(4,000,000*110/100)+42000accrued interest] | 4442000 | ||
