Prepare Journal Entries to Record the Following Transactions Relating to Long-Term

question 77

Essay

Prepare journal entries to record the following transactions relating to long-term bonds of Kirby, Inc. (Show computations.)(a) On June 1, 2013, Kirby, Inc. issued $5,000,000, 6% bonds for $4,897,000, which includes accrued interest. Interest is payable semiannually on February 1 and August 1 with the bonds maturing on February 1, 2023. The bonds are callable at 102.(b) On August 1, 2013, Kirby paid interest on the bonds and recorded amortization. Kirby uses straight-line amortization.(c) On February 1, 2015, Kirby paid interest and recorded amortization on all of the bonds, and purchased $3,000,000 of the bonds at the call price. Assume that a reversing entry was made on January 1, 2015.

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Definitions:

Cash Flows

The net amount of cash being transferred into and out of a business, used as an indicator of financial health.

Miller-Orr Model

The Miller-Orr Model is a financial model used to manage cash balances by setting upper and lower limits on cash reserves, suggesting when to transfer funds to minimize costs.

Lower Limit

The minimum value or boundary that a variable, such as a stock price or interest rate, can reach or be set to.

Upper Limit

The highest value that a variable can assume in a given context or the maximum capacity of a system.