[sagnik2422]

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.

[paraclete]

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