On April 1, 2020, Oriole Company sold 30,600 of its 12%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2021, Oriole took advantage of favorable prices of its stock to extinguish 6,600 of the bonds by issuing 217,800 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company’s stock was selling for $32 per share on March 1, 2021. Prepare the journal entries needed on the books of Cullumber Company to record the following. A) April 1, 2020: issuance of the bonds.
B) October 1, 2020: payment of semiannual interest.
C) December 31, 2020: accrual of interest expense.
D) March 1, 2021: extinguishment of 6,900 bonds.
No. Date Account Titles and Explanation Debit Credit
(a) 4/1/20 Cash 23,571,000
Discount on Bonds Payable 729,000
Bonds Payable 24,300,000
(b) 10/1/20 Interest Expense 1,482,300
Discount on Bonds Payable 24,300
Cash 1,458,000
(c) 12/31/20 Interest Expense 741,150
Discount on Bonds Payable 12,150
Interest Payable 729,000
(d) 3/1/21
(To record interest and discount on bonds retired)
3/1/21 Bonds Payable 6,900,000
Loss on Redemption of Bonds 125,350
Discount on Bonds Payable 194,350
Common Stock 2,277,000
Paid-in Capital in Excess of Par -
Common Stock 4,554,000
(To record extinguishment of the bonds)