On April 1, 2020, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2021, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company's stock was selling for $31 per share on March 1, 2021.InstructionsPrepare the journal entries needed on the books of Seminole Company to record the following.a.    April 1, 2020: issuance of the bonds.b.    October 1, 2020: payment of semiannual interest.c.    December 31, 2020: accrual of interest expense.d.    March 1, 2021: extinguishment of 6,000 bonds. (No reversing entries made.)

Question
Asked Feb 7, 2020
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On April 1, 2020, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2021, Seminole took advantage of favorable prices of its stock to extinguish 6,000 of the bonds by issuing 200,000 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company's stock was selling for $31 per share on March 1, 2021.

Instructions

Prepare the journal entries needed on the books of Seminole Company to record the following.

a.    April 1, 2020: issuance of the bonds.

b.    October 1, 2020: payment of semiannual interest.

c.    December 31, 2020: accrual of interest expense.

d.    March 1, 2021: extinguishment of 6,000 bonds. (No reversing entries made.)

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Expert Answer

Step 1

Since we only answer up to 3 sub-parts, we’ll answer the first three. Please resubmit the question and specify the other sub parts (up to 3) you’d like answered.

Bond is an instrument which represent the amount of loan raised by the borrower from the lender. It has a fixed interest. The bond redemption includes the repayment of interest & loan amount raised by the borrower.

A journal entry is prepared by the company to record the non-economic & economic transactions of the business. It is prepared on daily basis. All the quantitative transactions are recorded. The recording of entry involves debiting one account and crediting another account

Step 2

(a)

Number of shares: 15,000

Face value of bond: $1,000

Total face value of bonds: 15,000 × $1,000 = $15,000,000

Price at which bond issued: 97% of face value

Cash proceeds of bond: ($1,000 × 97% × 15,000) = $14,550,000

The journal entry to record the issuance of bond is as follows:

Accounting homework question answer, step 2, image 1

Discount on bonds payable:

Accounting homework question answer, step 2, image 2

Step 3

(b)

The journal entry for payment of semi-annual interest is prepared as follows:

Accounting homework question answer, step 3, image 1

The amount of semi-annual interest expenses is calculated as follows:

Accounting homework question answer, step 3, image 2

The amortization of discount on bonds payable is calculated as follows:

Accounting homework question answer, step 3, image 3

...

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