Homework Answers
Answer-a- Journal entries
| Date | Account Title and Explanation | Debit ($) | Credit ($) |
| Old bond redemption:- | |||
| June 30,2018 | 12% bonds payable | 800,000 | |
| Loss on retirement on bonds | 40,800 | ||
| Cash | 832,000 | ||
| Discount on bonds | 8,800 | ||
| (To record redemption of old bonds) | |||
| New Bond issue:- | |||
| June 30,2018 | Cash (1,000,000*102/100) | 1,020,000 | |
| 10% Bonds Payable (1,000,000*100/100) | 1,000,000 | ||
| Premium on Bonds (1,000,000*2/100) | 20,000 | ||
| (To record the issuance of new bonds at premium) |
Working Note:-
Compute the unamortized discount:-
| Discount at the time of issue | 16,000 |
|
Less: Discount amortized till June 30,2018 (16,000/40*18) |
7,200 |
| Unamortized discount | 8,800 |
Compute the loss on redemption:-
| Redemption of Bonds | 832,000 |
| Less: Carrying value (800,000-8,800) | 791,200 |
| Loss on redemption | 40,800 |
b-Journal entry to record the interest expense
| Date | Account Title and Explanation | Debit ($) | Credit ($) |
| Dec.31,2018 | Interest expenses | 49,500 | |
| Premium on bonds payable (20,000/40) | 500 | ||
| Cash (1,000,000*10%*6/12) | 50,000 | ||
| (To record the interest expenses for 6 months) |
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