Answer:
Step-by-step explanation:
a) June 1, 2020: issuance of the bonds.
Cash received = 6,000 bonds × $1,000 face value × 0.96 = $5,760,000
Discount on bonds payable = 6,000 bonds × $1,000 face value × (1 - 0.96) = $240,000
Therefore, the journal entry is:
bash
Copy code
Cash $5,760,000
Discount on Bonds Payable $240,000
Bonds Payable $6,000,000
(To record issuance of bonds on June 1, 2020)
(b) December 1, 2020: payment of semiannual interest.
Interest payment = 6,000 bonds × $1,000 face value × 6% × 6/12 = $180,000
Therefore, the journal entry is:
bash
Copy code
Interest Expense $180,000
Cash $180,000
(To record payment of interest on December 1, 2020)
(c) December 31, 2020: accrual of interest expense.
Interest expense = $240,000 discount on bonds payable ÷ 40 semiannual periods
Therefore, the journal entry is:
vbnet
Copy code
Interest Expense $6,000
Discount on Bonds Payable $6,000
(To record accrual of interest expense on December 31, 2020)
(d) February 1, 2019: extinguishment of 4,000 bonds. (No reversing entries made.)
The carrying value of the bonds is:
Carrying value = $6,000,000 face value - ($240,000 ÷ 40 semiannual periods × 1 semiannual period) = $5,880,000
The fair value of the 4,000 bonds extinguished is:
Fair value = 4,000 bonds × $1,000 face value × 0.96 + $180,000 accrued interest = $4,044,000
The gain or loss on the extinguishment is:
Gain or loss = Fair value - Carrying value = $4,044,000 - $5,880,000 = -$1,836,000 (loss)
The number of shares issued to extinguish the bonds is:
Number of shares = $4,044,000 fair value ÷ $8.50 per share = 476,470 shares
Therefore, the journal entry is:
bash
Copy code
Bonds Payable $4,000,000
Discount on Bonds Payable $160,000
Loss on Bond Extinguishment $1,836,000
Common Stock $476,470
Paid-in Capital in Excess of Par - Common $3,683,530
(To record extinguishment of 4,000 bonds on February 1, 2019)
Interest Expense $180,000
Cash $180,000
(To record payment of accrued interest on February 1, 2019)