Question

Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $15,000,000 of 20-year, 9% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year.

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

1. Cash Dr, $15,000,000

To Bonds payable $15,000,000

(Being issue of bonds is recorded)

2. Interest expense on bonds Dr, $675,000

To cash $675,000 ($15,000,000 × 9% × 6 ÷ 12)

(Being payment of interest is recorded)

3. Bonds payable Dr, $15,000,000

To Gain on redemption of bonds $600,000

To Cash ($15,000,000 × 0.96) $14,400,000

(Being redemption on bonds is recorded)