Question

Problem 14-15 Early extinguishment; effective interest [LO14-5]

The long-term liability section of Twin Digital Corporation’s balance sheet as of December 31, 2017, included 14% bonds having a face amount of $35 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 16%.

Interest expense is recorded at the effective interest rate and paid on January 1 and July 1 of each year. On July 1, 2018, Twin Digital retired the bonds at 102 ($35.7 million) before their scheduled maturity.

Required:

1. & 2. Prepare the necessary journal entries for Twin Digital on July 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)
Journal entry worksheet Record the semiannual interest. Note: Enter debits before credits. Debit Credit Date July 01, 2018 General Journal Interest expense Discount on bonds payable Cash Record entry Clear entry View general journal

Answer 1

| Answert If credit Debit 2.720,000 270,000 2,450,000 Date_ Particulars_ July 1,2018 Interest Expense All DY (34,000,000 X 8%) To Discount on bonde payable (@,720,000 -2,450,000 To cash (35,000,000x77.) July 1.200 Bonds payable al or Lays on early extinguishment of bonds (balancing amount) To Discount on bonds payable .. (1000000-270,000) To Gosh (35,000,000X1024) 35,000,000 1,430,000 730,000 35,700,000