Question

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $31,400,000 of 20-year, 5% 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.2016 May 1 Issued the bonds for cash at their face amount.Nov. 1 Paid the interest on the bonds.2022 Nov. 1 Called the bond issue at 96, the rate provided in the bond indenture. (Omit entry for payment of interest.)

Answer 1

Answer:

JOURNAL ENTRIES

20Y1

1 May Debit Bank $31,400,000, Credit callable Bond $31,000,000

1 Nov Debit Interest expense $775000, Credit Bank $775000

20Y2

1 May  Debit Interest expense $775000, Credit Bank $775000

1 Nov  Debit Interest expense $775000, Credit Bank $775000

2016

1 Nov Debit callable bond $31,000,000 Credit Bank $30,690,000 , Discount received $310,000.

Explanation:

interest = $ 31,000,000* 0.05 = $775000

Called bonds at 99 face value = 31,000,000*0.99 = $30,690,000