# The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Instructions 1. Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. 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.

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 4PA
Textbook Problem
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## The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:Instructions 1. Journalize the entries to record the foregoing transactions. Round all amounts to the nearest dollar. 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.

1.

To determine

Journalize the entries to record the transactions.

### Explanation of Solution

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations. Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value. Installment note: It is a debt in which the borrower is required to pay equal periodic payments to the lender based on the term of the note. Journalize the entries to record the transactions.  Date Accounts and Explanation Post Ref. Debit ($) Credit ($) Year 1 Cash 63,532,267 July 1 Discount on Bonds Payable (1) 10,467,733 Bonds Payable 74,000,000 (To record issue of bonds at discount) October 1 Cash 200,000 Notes Payable 200,000 (To record issue of 6% notes for cash) December 31 Interest Expense 3,000 Interest Payable 3,000 (To record interest accrued on installment note) December 31 Interest Expense (4) 4,331,693 Discount on Bonds Payable (2) 261,693 Cash (3) 4,070,000 (To record semiannual interest payment and amortization on bonds) Table (1)  Date Accounts and Explanation Post Ref. Debit ($) Credit ($) Year 2 Interest Expense (4) 4,331,693 June 30 Discount on Bonds Payable (2) 261,693 Cash (3) 4,070,000 (To record semiannual interest payment and amortization on bonds) September 30 Interest Expense 9,000 Interest Payable 3,000 Notes Payable 28,673 Cash 40,673 (To record the annual payment on note) December 31 Interest Expense 2,570 Interest Payable 2,570 To record interest accrued on installment note) December 31 Interest Expense (4) 4,331,693 Discount on Bonds Payable (2) 261,693 Cash (3) 4,070,000 (To record semiannual interest payment and amortization on bonds) Table (2)  Date Accounts and Explanation Post Ref. Debit ($) Credit ($) Year 3 Bonds Payable 74,000,000 June 30 Loss on Redemption of Bonds (6) 7,940,961 Discount on Bonds Payable 9,420,961 Cash (5) 72,520,000 (To record redemption of bonds) September 30 Interest Expense 7,710 Interest Payable 2,570 Notes Payable 30,393 Cash 40,673 (To record the annual payment on note) Table (3) Working notes: (1) Calculate discount on bonds payable. Discount on bonds payable = (Face value Cash received) =$74,000,000$63,532,267=$10,467,733

(2)

Calculate discount on bonds payable semiannually

2(a)

To determine

Calculate the amount of interest expense in Year 1.

b.

To determine

Calculate the amount of interest expense in Year 2.

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