Adele Corp., a wholesaler of music equipment, issued $31,400,000 of 20-year, 5% callable bonds on March 1, 20Y1, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions. Refer to the Chart of Accounts for exact wording of account titles. 20Y1 Mar. 1 Issued the bonds for cash at their face amount. Sept. 1 Paid the interest on the bonds. 20Y5 Sept. 1 Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.)

The Journal Entries and their narrations is shown below:-

Explanation:

The Journal entry is shown below:-

1. Cash Dr,                     $31,400,000  

    To Bonds payable                     $31,400,000

(Being issue bonds payable is recorded)  

2. Interest expense        $785,000

($31,400,000 × 5% × 6 ÷ 12)

       To Cash                                 $785,000

(Being interest paid is recorded)  

3. Bonds payable Dr,                 $31,400,000  

Loss on retirement of bonds Dr,$942,000  

           To Cash                                       $32,342,000

($31,400,000 × 103 ÷ 100)  

(Being bonds early retirement is recorded)

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