Question

The long-term liability section of Twin Digital Corporation’s balance sheet as of December 31, 2017, included 12% bonds having a face amount of $30 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 14%.

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 ($30.6 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.)

Answer 1

Answer:

Date	Account title and Explanation	Debit	Credit
July 1,2018	Interest expense [29,000,000 x 7%]	$2,030,000
	Discount on bonds payable		$230,000
	Cash [$30,000,000 x 6%]		$1,800,000
	[To record payment of interest]
July 1,2018	Bonds payable	$30,000,000
	Loss on redemption of bonds payable	$1,370,000
	Discount on bonds payable (unamortized) [$1,000,000-$230,000]		$770,000
	Cash [$30,000,000 x 1.02]		$30,600,000
	[To record redemptions of bonds]