The following transactions were completed by Montague Inc., whose fiscal year is the calendar year:Year 1July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30.Oct. 1. Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank. The note requires annual payments of $97,342, with the first payment occurring on September 30, Year 2.Dec. 31. Accrued $9,000 of interest on the installment note. The interest is payable on the date of the next installment note payment.31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.Year 2June 30. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.Sept. 30. Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342.Dec. 31. Accrued $7,773 of interest on the installment note. The interest is payable on the date of the next installment note payment.31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.Year 3June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. Record the redemption only.Sept. 30. Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249.Instructions1. Journalize the entries to record the foregoing transactions.2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.3. Determine the carrying amount of the bonds as of December 31, Year 2.

Question
Asked Dec 20, 2019
2 views

The following transactions were completed by Montague Inc., whose fiscal year is the calendar year:
Year 1
July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30.
Oct. 1. Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank. The note requires annual payments of $97,342, with the first payment occurring on September 30, Year 2.
Dec. 31. Accrued $9,000 of interest on the installment note. The interest is payable on the date of the next installment note payment.
31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.

Year 2

June 30. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.
Sept. 30. Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342.
Dec. 31. Accrued $7,773 of interest on the installment note. The interest is payable on the date of the next installment note payment.
31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.

Year 3

June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. Record the redemption only.
Sept. 30. Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249.

Instructions

1. Journalize the entries to record the foregoing transactions.
2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.
3. Determine the carrying amount of the bonds as of December 31, Year 2.

check_circle

Expert Answer

Step 1

1.

Journalize the entries to record the transactions.

 

help_outline

Image Transcriptionclose

Accounts and Explanation Date Post Debit Credit Ref. (S) 62,817.040 (S) Year 1 Cash 7.817.40 Premium on Bonds Payable Bonds Payable (To record issue of bonds at premium) July 1 55,000,000 Interest Expense December 31 2,084.148 390,852 Premium on Bonds Payable 2,475,000 Cash (To record semianmual interest payment and bonds) amortication 2,084,148 December 31 Income Summary Interest Expense (To close the interest expense 2,084,148 account) Year 2 Interest Expense 2,084,148 390,852 June 30 Premium on Bonds Payable Cash 2,475,000 (To record semiannual interest payment and ammortization on bonds) December 31 Interest Expense 2,084,148 390,852 Premium on Bonds Payable 2,475.000 Cash (To record semiannual interest payment and amortication on bonds) 4,168,296 December 31 Income Summary Interest Expense (To close the interest expense 4,168,296 account) Bonds Payable Premium on Bonds Payable Gain on Redemption of Bonds Cash Year 3 55,000,000 6,253,632 June 30 4,603,632 56.650.000 (To record redemption of bonds)

fullscreen
Step 2

2a.

Determine the amount of interest expense in Year 1.

help_outline

Image Transcriptionclose

Total interest expense in Year 1 = $2,084,148

fullscreen
Step 3

2b.

Determine the amount of inter...

help_outline

Image Transcriptionclose

Total interest expense in Year 2 = $2,084,148 + $2,084,148 =$4,168,296

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Financial Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: A $1,200,000 bond issue on which there is an unamortized premium of $63,956 is redeemed for $1,250,0...

A: Journalize the redemption of the bonds.

question_answer

Q: Joint costs and byproducts. (W.Crum adapted) Royston,Inc., is a large food processing company. It pr...

A: Joint products:Joint products are several products which are produced from a common production proce...

question_answer

Q: What is a purchase return? How does a purchase allowance differ from a purchase return?

A: Purchase return:  Purchase return refers to return of merchandise or goods purchased by customers to...

question_answer

Q: Berry Company reported the following on the company's income statement in two recent years: Current ...

A: Requirement a:Calculate the times-interest earned ratio for the current year and the prior year.

question_answer

Q: Calculate the contribution margin ratio of a company with sales of $180,000 and operating income of ...

A: Contribution MarginContribution Margin can be stated on a gross or per unit basis. It represents the...

question_answer

Q: Thank you for help! I cant thank you enough

A: a.  Journal Entries for said transactions:

question_answer

Q: Assume the perpetual inventory system is used unless stated otherwise. Round all numbers to the near...

A: Purchases is an activity of acquiring the merchandise inventory of a business.Sales is an activity o...

question_answer

Q: Quality Move Company made the following expenditures on one of its delivery trucks:Mar. 20. Replaced...

A: Capital expenditure: It refers to the amount spent on acquiring, maintaining, and improving the fixe...

question_answer

Q: Data related to the acquisition of timber rights and intangible assets during the current year ended...

A: The amount of the depletion expense for the current year for timber rights is $352,000.