Prepare journal entries to record the issuance of the bonds and the retirement of bonds. (Show computations and round to the n ... The December 31, 2018 balance sheet of Wolfe Co. included the following items:7.5% bonds payable due December 31, 2026 $3,000,000Unamortized discount on bonds payable 120,000The bonds were issued on December 31, 2016 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization.) On April 1, 2016, Wolfe retired $600,000 of these bonds at 101 plus accrued interest.

issuance entry:

cash 2,850,000 debit

discount on BP 150,000 debit

bonds payable 3,000,000 credit

--to record issuance--

bonds payable 600,000 debit

loss on redemption 30,000 debit

interest expense 56,250 debit

cash 662,250 credit

discount on BP 24,000 credit

--to record redemption - --

Explanation:

proceeds at issuance : $3,000,000 x 95/100 = 2,850,000

the difference will be the discount.

Now, when the bonds are retired we have to check the weight:

3,000,000 - -> 120,000

600,000 - -> 120,000/3,000,000 x 600,000 = 24,000

cash outlay 600,000 x 101/100 = 606,000

loss redemption

we pay 606,000

for bonds which are worth: 600,000 - 24,000 = 576,000

The loss is the difference.

then, we calcualte the accrued interest:

principal x rate x time

3,000,000 x 7.5% x 3/12 = 56,250‬

this will be an interest expense

as well as an additional cash outlay