The following information is taken from Lima Corp.”s balance sheet at December 31, 2011.
| Current liabilities | ||
| Interest payable | ||
| Long-term liabilities | $ 96,000 | |
| Bonds payable (4%, due January 1, 2022) | $2,400,000 | |
| Less: Discount on bonds payable | 24,000 | 2,376,000 |
Interest is payable annually on January 1. The bonds are callable on any annual interest date. Lima uses straight-line amortization for any bond premium or discount. From December 31, 2011, the bonds will be outstanding for an additional 10 years (120 months).
Instructions
(Round all computations to the nearest dollar.)
(a) Journalize the payment of bond interest on January 1, 2012.
(b) Prepare the entry to amortize bond discount and to accrue the interest on December 31, 2012.
(c) Assume on January 1, 2013, after paying interest, that Lima Corp. calls bonds having a face value of $400,000. The call price is 102. Record the redemption of the bonds.
(d) Prepare the adjusting entry at December 31, 2013, to amortize bond discount and to accrue interest on the remaining bonds.
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