On January 1, 2014 Victory Falls Company issued $2,100,000 in bonds that mature in 5 years. The bonds have a stated interest rate of 8% and pay interest quarterly each year. When the bonds were sold, the market rate of interest was 6%. These bonds, when issued and sold, contained a call feature, which allowed the company to retire the bonds early, if they elected, for a one-time payment equal to 1% of the book value at the time of retirement. Effective-Interest Method Date Interest Payment Interest Expense Premium Amortization* Unamortized Premium Book Value 1-Jan-14 $ 180 271 $ 2 280 271 31-Mar-14 42 000 34 204 7 796 172 475 2 272 475 30-Jun-14 42 000 34 087 7 913 164 562 2 264 562 30-Sep-14 42 000 33 968 8 032 156 530 2 256 530 31-Dec-14 42 000 33 848 8 152 148 378 2 248 378 31-Mar-15 42 000 33 726 8 274 140 104 2 240 104 30-Jun-15 42 000 33 602 8 398 131 706 2 231 706 30-Sep-15 42 000 33 476 8 524 123 181 2 223 181 31-Dec-15 42 000 33 348 8 652 114 529 2 214 529 31-Mar-16 42 000 33 218 8 782 105 747 2 205 747 30-Jun-16 42 000 33 086 8 914 96 833 2 196 833 30-Sep-16 42 000 32 952 9 048 87 785 2 187 785 31-Dec-16 42 000 32 817 9 183 78 602 2 178 602 31-Mar-17 42 000 32 679 9 321 69 281 2 169 281 30-Jun-17 42 000 32 539 9 461 59 820 2 159 820 30-Sep-17 42 000 32 397 9 603 50 218 2 150 218 31-Dec-17 42 000 32 253 9 747 40 471 2 140 471 31-Mar-18 42 000 32 107 9 893 30 578 2 130 578 30-Jun-18 42 000 31 959 10 041 20 537 2 120 537 30-Sep-18 42 000 31 808 10 192 10 345 2 110 345 31-Dec-18 42 000 31 655 10 345 (0) 2 100 000 I just need H now: H. Victory Falls Company elected to retire the bonds early on June 30, 2015, after the final interest payment.Give the journal entries to record the interest expense on June 30, 2015 first, and then the retirement of bonds using the effective interest method. Is it right 30-Jun-15 Bonds payable 2 100 000 Premium on bonds payable 131 706 Loss on bond call (109 388) Cash 2 122 317

On January 1, 2014 Victory Falls Company issued $2,100,000 in bonds that mature in 5 years. The bonds have a stated interest rate of 8% and pay interest quarterly each year. When the bonds were sold, the market rate of interest was 6%. These bonds, when issued and sold, contained a call feature, which allowed the company to retire the bonds early, if they elected, for a one-time payment equal to 1% of the book value at the time of retirement. Effective-Interest Method Date Interest Payment Interest Expense Premium Amortization* Unamortized Premium Book Value 1-Jan-14 $ 180 271 $ 2 280 271 31-Mar-14 42 000 34 204 7 796 172 475 2 272 475 30-Jun-14 42 000 34 087 7 913 164 562 2 264 562 30-Sep-14 42 000 33 968 8 032 156 530 2 256 530 31-Dec-14 42 000 33 848 8 152 148 378 2 248 378 31-Mar-15 42 000 33 726 8 274 140 104 2 240 104 30-Jun-15 42 000 33 602 8 398 131 706 2 231 706 30-Sep-15 42 000 33 476 8 524 123 181 2 223 181 31-Dec-15 42 000 33 348 8 652 114 529 2 214 529 31-Mar-16 42 000 33 218 8 782 105 747 2 205 747 30-Jun-16 42 000 33 086 8 914 96 833 2 196 833 30-Sep-16 42 000 32 952 9 048 87 785 2 187 785 31-Dec-16 42 000 32 817 9 183 78 602 2 178 602 31-Mar-17 42 000 32 679 9 321 69 281 2 169 281 30-Jun-17 42 000 32 539 9 461 59 820 2 159 820 30-Sep-17 42 000 32 397 9 603 50 218 2 150 218 31-Dec-17 42 000 32 253 9 747 40 471 2 140 471 31-Mar-18 42 000 32 107 9 893 30 578 2 130 578 30-Jun-18 42 000 31 959 10 041 20 537 2 120 537 30-Sep-18 42 000 31 808 10 192 10 345 2 110 345 31-Dec-18 42 000 31 655 10 345 (0) 2 100 000 I just need H now: H. Victory Falls Company elected to retire the bonds early on June 30, 2015, after the final interest payment.Give the journal entries to record the interest expense on June 30, 2015 first, and then the retirement of bonds using the effective interest method. Is it right 30-Jun-15 Bonds payable 2 100 000 Premium on bonds payable 131 706 Loss on bond call (109 388) Cash 2 122 317

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter9: Long-term Liabilities

Section: Chapter Questions

Problem 7MCQ

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Related questions

Question

Effective-Interest Method

Date

Interest Payment

Interest Expense

Premium Amortization*

Unamortized Premium

Book Value

1-Jan-14

$ 180 271

$ 2 280 271

31-Mar-14

42 000

34 204

7 796

172 475

2 272 475

30-Jun-14

42 000

34 087

7 913

164 562

2 264 562

30-Sep-14

42 000

33 968

8 032

156 530

2 256 530

31-Dec-14

42 000

33 848

8 152

148 378

2 248 378

31-Mar-15

42 000

33 726

8 274

140 104

2 240 104

30-Jun-15

42 000

33 602

8 398

131 706

2 231 706

30-Sep-15

42 000

33 476

8 524

123 181

2 223 181

31-Dec-15

42 000

33 348

8 652

114 529

2 214 529

31-Mar-16

42 000

33 218

8 782

105 747

2 205 747

30-Jun-16

42 000

33 086

8 914

96 833

2 196 833

30-Sep-16

42 000

32 952

9 048

87 785

2 187 785

31-Dec-16

42 000

32 817

9 183

78 602

2 178 602

31-Mar-17

42 000

32 679

9 321

69 281

2 169 281

30-Jun-17

42 000

32 539

9 461

59 820

2 159 820

30-Sep-17

42 000

32 397

9 603

50 218

2 150 218

31-Dec-17

42 000

32 253

9 747

40 471

2 140 471

31-Mar-18

42 000

32 107

9 893

30 578

2 130 578

30-Jun-18

42 000

31 959

10 041

20 537

2 120 537

30-Sep-18

42 000

31 808

10 192

10 345

2 110 345

31-Dec-18

42 000

31 655

10 345

(0)

2 100 000

I just need H now:

H. Victory Falls Company elected to retire the bonds early on June 30, 2015, after the final interest payment.
Give the journal entries to record the interest expense on June 30, 2015 first, and then the retirement of bonds using the effective interest method.

Is it right

30-Jun-15
Bonds payable	2 100 000
Premium on bonds payable	131 706
Loss on bond call	(109 388)
Cash		2 122 317

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