Cupola fan corporation issued 12%, $430,000, 10-year bonds for $412,000 on june 30, 2018. debt issue costs were $1,800. interest is paid semiannually on december 31 and june 30. one year from the issue date (july 1, 2019), the corporation exercised its call privilege and retired the bonds for $415,000. the corporation uses the straight-line method both to determine interest expense and to amortize debt issue costs. required: 1. to 4. prepare the journal entry to record the issuance of the bonds, the payment of interest and amortization of debt issue costs on december 31, 2018 & 2019, and the call of the bonds.

cash                                      410,200 debit

discount on bonds payable18,000 debit

flotation cost                           1,800 debit

              bonds payable                             430,000 credit

June 30th 2018:

Interest expense   26,780

discount on bonds payable 900  

            flotation cost              90

            cash                     25,800

December 31th 2018:

Interest expense   26,780

discount on bonds payable 900  

            flotation cost              90

            cash                     25,800

June 30th  2019:

Interest expense   26,780

discount on bonds payable 900  

            flotation cost              90

            cash                     25,800

bonds payable 430,000

redemption of the bonds:

loss on redemption 1,830 debit

           discount on bond payable 15,300 credit

           flotation cost                          1,530 credit

           cash                                   415,000 credit

Explanation:

Issuance:

We will subtract from the issued cost the cost.

issued at         412,000

face value430,000

discount on bonds payable18,000

payments:

580,000 x 0.06 = 25800 proceeds

amortization on flotation cost 1,800 / 20 = 90

on discount on bonds 18,000 / 20 = 900

Call:

disbursement 415,000

carrying value of the bonds:

discount on bond payable 18,000 - 900 - 900 - 900 = 15,300

flotation cost 1,800 - 90  -90   -90  = 1,530

bonds payable                          430,000

discount on bond payable         (15,300)

 flotation cost                                (1, 530)

            net                                    413, 170

result on redemption:

413,170  -  415,000   =  -1,830 loss

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