Question

The following section is taken from Carla Vista's balance sheet at December 31, 2021. Current liabilities Interest payable $ 50,000 Long-term liabilities Bonds payable (10%, due January 1, 2025) 600,000 Interest is payable annually on January 1. The bonds are callable on any annual interest date. (a) Journalize the payment of the bond interest on January 1, 2022. (b) Assume that on January 1, 2022, after paying interest, Carla Vista calls bonds having a face value of $195,000. The call price is 109. Record the redemption of the bonds. (c) Prepare the adjusting entry on December 31, 2022, to accrue the interest on the remaining bonds.

Answer 1

(a) Journalize the payment of the bond interest on January 1, 2022.

Since no accrued interest has been recorded, we must journalize the interest expense.

Dr Interest expense - bonds payable 60,000

Cr Cash 60,000

If the interest expense had been accrued by December 31 (like question C), then the journal entry should have been:

Dr Interest payable- bonds payable 60,000

Cr Cash 60,000

(b) Assume that on January 1, 2022, after paying interest, Carla Vista calls bonds having a face value of $195,000. The call price is 109. Record the redemption of the bonds.

Dr Bonds payable 195,000

Dr Call premium expense 17,550

Cr Cash 212,550

(c) Prepare the adjusting entry on December 31, 2022, to accrue the interest on the remaining bonds.

Dr Interest expense 40,500

Cr Interest payable - bonds payable 40,500