Question

Cupola Fan Corporation issued 10%, $450,000, 10-year bonds for $430,000 on June 30, 2024.

debt issue costs were $2,000.
Interest is paid semiannually on December 31 and June 30.
One year from the issue date (July 1, 2025), the corporation exercised its call privilege and retired the bonds for $435,000.
The corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs.
Required:
1. to 4. Prepare the journal entries to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2024 & June 30, 2025, and the call of the bonds.

Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.

Answer 1

To record the issuance of the bonds, the payment of interest and amortization of debt issue costs on December 31, 2024 & June 30, 2025, and the call of the bonds, specific journal entries need to be made.

Step-by-step explanation:

To record the issuance of the bonds:

1. Debit cash for $430,000
2. Debit Discount on Bonds Payable for $20,000
3. Credit Bonds Payable for $450,000

To record payment of interest and amortization of debt issue costs on December 31, 2024:

1. Debit Interest Expense for $18,000
2. Debit Amortization of Debt Issue Costs for $1000
3. Credit Cash for $19,000

To record payment of interest and amortization of debt issue costs on June 30, 2025:

1. Debit Interest Expense for $18,000
2. Debit Amortization of Debt Issue Costs for $1000
3. Credit Cash for $19,000

To record the call of the bonds:

1. Debit Bonds Payable for $450,000
2. Debit Premium on Bonds Payable for $5000
3. Debit Loss on Bond Redemption for $20,000
4. Credit Cash for $475,000