P14.

10 (LO1, 3) (Entries for Life Cycle of Bonds) On April 1, 2019, Sarkar

Sailboats sold 15,000 of its 11%, 15-year, R$1,000 face value bonds to yield
12%. Interest payment dates are April 1 and October 1. On April 2, 2020,
Sarkar took advantage of favorable prices of its shares to extinguish 6,000 of
the bonds by issuing 200,000 of its R$10 par value ordinary shares. At this
time, the accrued interest was paid in cash. The company's shares were selling
for R$31 per share on April 2, 2020.
Instructions
Prepare the journal entries needed on the books of Sarkar to record the
following.
a. April 1, 2019: issuance of the bonds.
b. October 1, 2019: payment of semiannual interest.
c. December 31, 2019: accrual of interest expense.
d. April 1, 2020: payment of semiannual interest.
e. April 2, 2020: extinguishment of 6,000 bonds. (No reversing entries made.)
Penyelesaian
(a) 4/1/10
Cash 13,967,634*
Bonds Payable 13,967,634
*Present value of Rs15,000,000
due in 30 periods at 6% (Rs15,000,000 X .17411) Rs 2,611,650
Present value of interest payable
Semiannually (Rs825,000 X 13.76483) 11,355,984
Rs13,967,634
(b) 10/1/10
Bond Interest Expense 838,058*
Cash 825,000**
Bonds Payable 13,058
*Rs13,967,634 X .12 X 6/12 = Rs838,058
**Rs15,000,000 X .11 X 6/12 = Rs825,000
(c) 12/31/10
Bond Interest Expense 419,421*
Interest Payable 412,500
Bonds Payable 6,921
*(Rs13,967,634 + Rs13,058) X .12 X 3/12
(d) 4/1/11
Interest Payable 412,500
Bond Interest Expense 419,628*
Cash 825,000**
Bonds Payable 7,128
*Rs15,000,000 X .11 X 6/12
**Rs13,987,613 X .12 X 3/12

NOTE: All bondholders are paid on April 1 Au

The reacquisition price: 200,000 shares X Rs31 = Rs6,200,000.
The loss on extinguishment of the bonds is:
Reacquisition price Rs 6,200,000
Less: Carrying amount
(Rs13,987,613 + Rs7,128) X 40% 5,597,896
Loss Rs 602,104

The entry to record extinguishment of the bonds is:

April 2, 2011

Bonds Payable 5,597,896

Loss on Extinguishment of Bonds 602,104
Share Capital—Ordinary 2,000,000
Share Premium—Ordinary 4,200,000