The following is from Peppermint Patty Ltd.’s statement of financial position at December 31, 2011:
PEPPERMINT PATTY LTD.
Statement of Financial Position (partial)
December 31, 2011
Current liabilities
Interest payable…………………………………………………$5,000
Non-current liabilities
Bonds payable, 5%, due January 1, 2021……………………..186,246
The bonds have a of $200,000 and were issued one year ago at a price to yield a market interest rate of 6%. Interest is payable semi-annually on January 1 and July 1.
Instructions
(a) Record the payment of bond interest on January 1, 2012, assuming the accrued interest expense is $5,570 and interest payable is $5,000 at December 31.
(b) Assume that on January 1, 2012, after paying interest, Peppermint Patty redeems bonds having a of $50,000 at 98. Record the redemption of the bonds.
(c) Record the payment of bond interest on July 1, 2012, on the remaining bonds.
(d) Prepare the adjusting entry on December 31, 2012, to accrue the interest on the remaining bonds.
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