(Issuance of Bonds between Interest Dates, Straight-Line, Redemption) Presented below are selected transactions on the books of Simonson Corporation.

May 1, 2017 Bonds payable with a par value of \(900,000, which are dated January 1, 2017, are sold at 106 plus accrued interest. They are coupon bonds, bear interest at 12% (payable annually at January 1), and mature January 1, 2027. (Use interest expense account for accrued interest.)

Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the amortization of the proper amount of premium. (Use straight-line amortization.)

Jan. 1, 2018 Interest on the bonds is paid.

April 1 Bonds with par value of \)360,000 are called at 102 plus accrued interest, and redeemed. (Bond premium is to be amortized only at the end of each year.)

Dec. 31 Adjusting entries are made to record the accrued interest on the bonds, and the proper amount of premium amortized.

Instructions

(Round to two decimal places.)

Prepare journal entries for the transactions above.

Date

Accounts and Explanation

Debit ($)

Credit ($)

1 May 2017

Cash

$990,000

Bond payable

$900,000

Premium on bond payable

$54,000

Interest expenses

$\left(\$900,000\times 12\%\times \frac{4}{12}\right)$

$36,000

31 Dec 2017

Interest expenses

$\left(\$900,000\times 12\%\right)$

$108,000

Interest payable

$108,000

31 Dec 2017

Premium on bond payable

$3,724.14

Interest expenses

$\left[\frac{8}{\left(12months\times 10Year\right)-4months}\times \$54,000\right]$

$3,724.14

1 Jan 2018

Interest payable

$108,000

Cash

$108,000

1 April 2018

Bond payable

$360,000

Premium on bond payable

$19,552

Interest expenses

$10,800

Cash

$378,000

Gain on redemption

$12,352

31 Dec 2018

Interest expenses$\left[\$108,000\times 60\%\right]$

$64,800

Interest payable

$64,800

31 Dec 2018

Premium on bond payable

$3,911

Interest expenses

$3,911

Particular

Amount $

Reacquisition$\left(\$360,000\times 102\%\right)\mathbf{+}\left(\$360,000\times 12\%\times \frac{3}{12}\right)$

$378,000

Less: net carrying value

(360,000)

Less: Unamortized premium

role="math" localid="1659193217694" $[\frac{116-11}{\left(12\mathrm{months}\times 10\mathrm{Year}\right)-4\mathrm{months}}\times \$54,000\times \frac{\$360,000}{\$900,000}]$

(19,552)

Less: Accrued interest$\left[\$108,000\times \frac{3}{12}\times \frac{\$360,000}{\$900,000}\right]$

(10,800)

Gain on redemption

$12,352

Particular

Amount $

Amortization per year$\left[\frac{12}{116}\times \$54,000\times 60\%\right]$

$3,352

Amortization on bond redeemed for 3 months

$\left[\frac{3}{116}\times \$54,000\times 40\%\right]$

$559

Premium amortized

$3,911