Accounting for Bonds Issued at Face Value
Response to the following problem:
Schwedt Company issued $280,000 of 9%, 10-year bonds at face value on September 1, 2009. The bonds pay interest on March 1 and September 1. Schwedt uses the calendar year for financial reporting purposes.
1. Provide the journal entry to record the bond issuance on September 1, 2009.
2. Provide the journal entry to record interest expense on December 31, 2009.
3. Provide the journal entries made during 2010 relating to the bond.
4. On February 20, 2011, Schwedt elected to retire the bond issue early. The market price on the day of retirement was $300,000. Provide the journal entries to record the bond retirement.
5. Why do you think Schwedt elected to retire the bonds early?