Entries for bonds payable and installment note transactions The following transactions were completed by Montague Inc., whose fiscal year is the calendar year. Year 1 July 1 Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semianually on December 31 and June 30. Oct. 1 Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank. The note requires annual payments of $97,342 with the first payment occurring on September 30, Year 2. Dec. 31 Accrued $9,000 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31 Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Year 2 June 30 Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Sept. 30 Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342. Dec. 31 Accrued $7,773 of interest on the installment note.The interest is payable on the date of the next installment note payment. 31 Paid the semiannual interest on the bonds.The bond premium amortization of $390,852 is combined with the semiannual interest payment. Year 3 June 30 Recorded the redemption of the bonds, which were called at 103.The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. Record the redemption only. Sept. 30 Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249. Instructions 1. Journalize the entries to record the foregoing transactions. 2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2. 3. Determine the carrying amount of the bonds as of December 31, Year2.

Entries for bonds payable and installment note transactions The following transactions were completed by Montague Inc., whose fiscal year is the calendar year. Year 1 July 1 Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semianually on December 31 and June 30. Oct. 1 Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank. The note requires annual payments of $97,342 with the first payment occurring on September 30, Year 2. Dec. 31 Accrued $9,000 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31 Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Year 2 June 30 Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Sept. 30 Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342. Dec. 31 Accrued $7,773 of interest on the installment note.The interest is payable on the date of the next installment note payment. 31 Paid the semiannual interest on the bonds.The bond premium amortization of $390,852 is combined with the semiannual interest payment. Year 3 June 30 Recorded the redemption of the bonds, which were called at 103.The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. Record the redemption only. Sept. 30 Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249. Instructions 1. Journalize the entries to record the foregoing transactions. 2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2. 3. Determine the carrying amount of the bonds as of December 31, Year2.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Entries for bonds payable and installment note transactions

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

Year 1
July 1	Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semianually on December 31 and June 30.
Oct. 1	Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank. The note requires annual payments of $97,342 with the first payment occurring on September 30, Year 2.
Dec. 31	Accrued $9,000 of interest on the installment note. The interest is payable on the date of the next installment note payment.
31	Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.
Year 2
June 30	Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment.
Sept. 30	Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342.
Dec. 31	Accrued $7,773 of interest on the installment note.The interest is payable on the date of the next installment note payment.
31	Paid the semiannual interest on the bonds.The bond premium amortization of $390,852 is combined with the semiannual interest payment.
Year 3
June 30	Recorded the redemption of the bonds, which were called at 103.The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. Record the redemption only.
Sept. 30	Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249.

Instructions

1. Journalize the entries to record the foregoing transactions.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

3. Determine the carrying amount of the bonds as of December 31, Year2.

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