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Question - Kensington Corp. desired to raise cash to fund its expansion by issuing long-term bonds. The corporation hired an investment banker to manage the issue (Best Efforts Underwriting) and also hired the services of a lawyer, an audit firm, etc. On June 1, 2021, Kensington sold $ 1,000,000 in long-term bonds. The bonds will mature in 10 years and have a stated interest rate of 6%. Other bonds that Kensington has issued with identical terms are traded based on a market rate of 8%. The bonds pay interest semi-annually on May 31 and November 30. The bonds are to be accounted for using the effective-interest method. On June 1, 2023, Twilight decided to retire 20% of the bonds. At that time the bonds were selling at 98.
Required -
a) Prepare the journal entry for the issuance of the bonds on June 1, 2021.
b) Prepare all entries from after the issue of the bond until December 31, 2021.
c) Prepare the journal entries to record the partial retirement on June 1, 2023.
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Larry Dundee is the chief executive officer of Palmer Electronics. Dundee is an expert engineer but a novice in accounting.
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