sagnik2422
Feb 10, 2014, 04:16 PM
Hi, I am really stuck and need some help with steps :
Cupola Fan Corporation issued 10%, $400,000 10 year bonds for $385,000 on June 30, 2013. Debt issue costs were $1500. Interest is paid semiannually on December 31 and June 30. One year from issue (July 1, 2014), corporation exercised call privilege and retired bonds for $395,000. Corporation uses straight line method to determine interest expense and to amortize debt costs.
Question : Record journal entry to record payment of interest :
Answer was shown as :
Dec 31 2013
Interest Exp (20,000 + 750)... 20,750
Discount on B/P (15,000 / 20)... 750
Cash (5% x 400,000)... 20,000
Debt issue exp (1500 / 2)... 75
Debt Issue costs... 75
My confusion : Where is the 20,000 + 750 coming from, and where is the 15,000 / 20 coming from?
Question 2: Prepare J/E to record call of bonds :
Answer was shown as :
B/P (face amount)... 400,000
Loss on Early Extinguishment (to balance)... 9850
Debt issue costs (9/10 x 1500)... 1350
Discount on Bonds (9/10 x (400,000 - 385,000)... 13,500
Cash (given)... 395,000
My confusion: Where is the 9/10 coming from?
Thanks so much , I really appreciate the help.
Cupola Fan Corporation issued 10%, $400,000 10 year bonds for $385,000 on June 30, 2013. Debt issue costs were $1500. Interest is paid semiannually on December 31 and June 30. One year from issue (July 1, 2014), corporation exercised call privilege and retired bonds for $395,000. Corporation uses straight line method to determine interest expense and to amortize debt costs.
Question : Record journal entry to record payment of interest :
Answer was shown as :
Dec 31 2013
Interest Exp (20,000 + 750)... 20,750
Discount on B/P (15,000 / 20)... 750
Cash (5% x 400,000)... 20,000
Debt issue exp (1500 / 2)... 75
Debt Issue costs... 75
My confusion : Where is the 20,000 + 750 coming from, and where is the 15,000 / 20 coming from?
Question 2: Prepare J/E to record call of bonds :
Answer was shown as :
B/P (face amount)... 400,000
Loss on Early Extinguishment (to balance)... 9850
Debt issue costs (9/10 x 1500)... 1350
Discount on Bonds (9/10 x (400,000 - 385,000)... 13,500
Cash (given)... 395,000
My confusion: Where is the 9/10 coming from?
Thanks so much , I really appreciate the help.