The following transactions were completed by Winklevoss Inc., whose fiscalyear is the calendar year:2016July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1,2016, at a market (effective rate of 13%, receiving cash of $63,532,267.Interest is payable semiannually on December 31 and June 30.October 1. Borrowed $200,000 by issuing a six-year, 6% installment note toNicks Bank. The note requires annual payments of $40,673, with the firstpayment occurring on September 30, 2017.December 31. Accrued $3,000 of interest on the installment note. Theinterest is payable on the date of the next installment note payment.December 31. Paid the semiannual interest on the bonds. The bond discountamortization of $261,693 is combined with the semiannual interest payment.Retrieved from:Warren, C. S., Reeve, J. M., & Duchac, J. (2016). Accounting (26 ed.). Boston, MA: Cengage Learning.December 31. Closed the interest expense account.2017June 30. Paid the semiannual interest on the bonds. The bond discountamortization of $261,693 is combined with the semiannual interest payment.September 30. Paid the annual payment on the note, which consisted ofinterest of $12,000 and principal of $28,673.December 31. Accrued $2,570 of interest on the installment note. Theinterest is payable on the date of the next installment note payment.December 31. Paid the semiannual interest on the bonds. The bond discountamortization of $261,693 is combined with the semiannual interest payment.December 31. Closed the interest expense account.2018June 30. Recorded the redemption of the bonds, which were called at 98.The balance in the bond discount account is $9,420,961 after payment ofinterest and amortization of discount have been recorded. (Record theredemption only.)September 30. Paid the second annual payment on the note, whichconsisted of interest of $10,280 and principal of $30,393.Instructions1. Journalize the entries to record the foregoing transactions. Round allamounts to the nearest dollar.2. Indicate the amount of the interest expense in (a) 2016 and (b) 2017.3. Determine the carrying amount of the bonds as of December 41, 2017.

DATE PARTICULARS DEBIT CREDIT Year 1 Cash 63,532,267 JULY 1 Discount on bonds payable…

Answered: July 1. Issued $74,000,000 of 20-year,…

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter14: Long-term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 6PA: Saverin, Inc. produces and sells outdoor equipment. On July 1, 2016, Saverin, Inc. issued 62,500,000...

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Question

The following transactions were completed by Winklevoss Inc., whose fiscal
year is the calendar year:
2016
July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1,
2016, at a market (effective rate of 13%, receiving cash of $63,532,267.
Interest is payable semiannually on December 31 and June 30.
October 1. Borrowed $200,000 by issuing a six-year, 6% installment note to
Nicks Bank. The note requires annual payments of $40,673, with the first
payment occurring on September 30, 2017.
December 31. Accrued $3,000 of interest on the installment note. The
interest is payable on the date of the next installment note payment.
December 31. Paid the semiannual interest on the bonds. The bond discount
amortization of $261,693 is combined with the semiannual interest payment.
Retrieved from:
Warren, C. S., Reeve, J. M., & Duchac, J. (2016). Accounting (26 ed.). Boston, MA: Cengage Learning.
December 31. Closed the interest expense account.
2017
June 30. Paid the semiannual interest on the bonds. The bond discount
amortization of $261,693 is combined with the semiannual interest payment.
September 30. Paid the annual payment on the note, which consisted of
interest of $12,000 and principal of $28,673.
December 31. Accrued $2,570 of interest on the installment note. The
interest is payable on the date of the next installment note payment.
December 31. Paid the semiannual interest on the bonds. The bond discount
amortization of $261,693 is combined with the semiannual interest payment.
December 31. Closed the interest expense account.
2018
June 30. Recorded the redemption of the bonds, which were called at 98.
The balance in the bond discount account is $9,420,961 after payment of
interest and amortization of discount have been recorded. (Record the
redemption only.)
September 30. Paid the second annual payment on the note, which
consisted of interest of $10,280 and principal of $30,393.
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) 2016 and (b) 2017.
3. Determine the carrying amount of the bonds as of December 41, 2017.

Expert Solution

Step 1

DATE	PARTICULARS	DEBIT	CREDIT
Year 1	Cash	63,532,267
JULY 1	Discount on bonds payable ($74000000 - $63532267)	10,467,733
	Bonds payable		74,000,000
	(To record the issue of bonds at discount)

DEC 31	Interest expense	4330693
	Discount on bonds payable		261693
	Cash($74000000 *11%81/2)		4070000
	(To record the payment of semi annual interest and amortization of discount)

DEC 31	Income summary	4331693
	Income expense		4331693
	(To close the interest expense account)

YEAR 2
30 JUN	Interest expense	4331693
	Discount on bonds payable		261693
	Cash ($7400000011%1/2		4070000
	(To record the payment of semi- annual interest and amortization of discount)

31 DEC	Interest expense	4331693
	Discount on bonds payable		261693
	Cash ($7400000011%1/2		4070000
	(To record the payment of semi- annual interest and amortization of discount)

31 DEC	Interest summary	8663386
	Interest expense		8663386
	(To close the interest expense account)

YEAR 3
30 JUN	Bonds payable	74,000,000
	Loss on redemption	7,940,961
	Discount on bonds payable		9,420,961
	Cash		72,520,000
	(To record the redemption of bonds payable and loss redemption)

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