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.

The 20000 is the semi annual interest, the 750 is an amortisation of the 15000 discount expense over twenty semi annual periods, the 15000 is the discount on issue 400000-385000 the 20 is the number of semi annual periods associated with a ten year bond

The 9/10 is the number of annual periods remaining at retirement but I would have written the issue expense off immediately as it has no future value