Question

Sweet, Inc. had outstanding $5,580,000 of 12% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,400,000°f 10%, 15-year bonds (interest payable July 1 and January 1) at 99. A portion of the proceeds was used to call the 12% bonds (with unamortized discount of $111,600) at 102 on August 1. Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the ampunts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) te Account Titles and Explanation Debit Credit July 1 (To record issuance of 10% bonds) August 1 (To record retirement of 12% bonds)

Please explain detail

Answer 1

July1

Bank Dr. $9306000

Discount on bonds payable. Dr. $94000

To Bonds payable. $9400000

(To record issuance of 10% bonds)

August 1

Bonds payable. Dr. $5580000

Loss on retirement of bonds. Dr. $223200

To cash (55800*102). $5691600

To discount on bonds payable. $111600

(To record retirement of 12% bonds)

Calculation of loss on retirement of bonds :

Carrying amount of bonds = $5580000-$111600

(Face value - discount)

= $5468400

Amount we are paying = $5691600

(55800*$102)

Which is we are paying ( $5691600-$5468400) = $223200 more which is known as loss on retirement of bonds.