Question

Exercise 14-14 On June 30, 2009, Riverbed Company issued 12% bonds with a par value of $840,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2017. Because of lower interest rates and a significant change in the company's credit rating, it was decided to call the entire issue on June 30, 2018, and to issue new bonds. New 8% bonds were sold in the amount of $1,070,000 at 102; they mature in 20 years. Riverbed Company uses straight-line amortization. Interest payment dates are December 31 and June 30. a) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2018 ) Prepare the entry required on December 31, 2018, to record the payment of the first 6 months' interest and the amortization of premium on the bonds (Round answers to o decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter for the amounts. Credit account tities are automatically indented when amount is entered. Do not indent manually.)

Answer 1

solution calculation of discount on bonds payable : a. 16800 Discount on bonds payable to be anortised [ 840000 x 20%] Number of years to amortise Annual camortization of discount No. of years lapsed b. Total descount anortised (840x9) = 7560 с Balance of discount to be 9240 = amortised (a-b)

Account title fon Debit Gedet 840000 Bonds payable loss on retirement of bonds cash [ 840000 X 104 %] 42840 873600 Discount on bonds payable 9240 [to record redemption of old Issue 1091400 1070000 21400 42265 eash ( 10700001 102%) Bonds payable premium on bonds payable [To record the sale of new Issue Interest expense premium on bonds payable ( 21400/20 X6/12] Cash [1070000 X 8% * 1/2 [ To record interest payment & premium amortization for 6 months 595 42800