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The following transactions were completed by Montague Inc.,whose fiscal year is the calendar year:

2016

July 1 Issued $55,000,000 of 10-year, 9% callable bonds datedJuly 1, 2016, at a market (effective) rate of 7%, receiving cash of$62,817,040. Interest is payable semiannually on December 31 andJune 30.

Oct. 1 Borrowed $450,000 by issuing a six-year, 8% installmentnote to Intexicon Bank. The note requires annual payments of$97,342, with the first payment occurring on September 30,2017.

Dec. 31 Accrued $9,000 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment.

31 Paid the semiannual interest on the bonds. The bond discountamortization of $390,852 is combined with the semiannual interestpayment.

31 Closed the interest expense account.

2017

June 30 Paid the semiannual interest on the bonds. The bonddiscount amortization of $390,852 is combined with the semiannualinterest payment.

Sept. 30 Paid the annual payment on the note, which consisted ofinterest of $36,000 and principal of $61,342.

Dec. 31 Accrued $7,773 of interest on the installment note. Theinterest is payable on the date of the next installment notepayment.

31 Paid the semiannual interest on the bonds. The bond discountamortization of $390,852 is combined with the semiannual interestpayment.

31 Closed the interest expense account.

2018

June 30 Recorded the redemption of the bonds, which were calledat 103. The balance in the bond premium account is $6,253,632 afterpayment of interest and amortization of premium have been recorded.(Record the redemption only.)

Sept. 30 Paid the second annual payment on the note, whichconsisted of interest of $31,093 and principal of $66,249.

Instructions

1. Journalize the entries to record the foregoing transactions.Round all amounts to the nearest dollar. Be sure to include theyear in the date for the entries. Refer to the Chart of Accountsfor exact wording of account titles.

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 31,2017.

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Reid Wolff
Reid WolffLv2
28 Sep 2019

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