Reference no: EM132726209
You glance at your watch and rejoice at what you saw. It is just ten minutes away from noon and your growling stomach reminded you that it was close to lunch time. Just then, the boss true to his promise to return at noon, did just that. "What? Thinking of going for lunch already? Isn't it yet way too early? And to think, you have been enjoying coffee breaks all morning long. When do you intend to put in some real serious work? Why don't you just dig in there instead and complete this second issue in the file. It is a short case and you are capable of completing issues in fifteen minutes when you put your mind to it. And oh, Paul over there has been inquiring about your position for quite a while. Okay, so bring me some results by 1:00 o'clock, on retiring these bonds," he suggests. There really was no alternative other than to delay lunch.
On January 1, 2018, the company had issued $3,600,000 par value, 7%, five-year bonds at a price of $3,753,258. Interest was payable semi annually on June 30 and December 31. The market rate of interest was 6% on the date the bond were issued.
On March 1, 2019, the company extinguished 70% of the bonds outstanding by issuing 26,250 of its common shares. It also paid in cash all interest due up to March 1, 2019 on these bonds. The market value of these shares was $36 per share. Assume the company is using IFRS to account for the bonds.
REQUIRED:
Problem 1: Prepare the journal entry to record the interest expense on the bonds payable, on December 31, 2018.
Problem 2: Prepare the journal entry to record the payment of interest accrued on the bonds which were retired on March 1, 2019.
Problem 3: Prepare the journal entry to record the early retirement of the bonds on March 1, 2019.
- Preparing an amortization table for the bond issue for the appropriate period would be useful in solving this problem.
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