Question

On June 30, 2012, Pronghorn Company issued 12% bonds with a par value of $740,000 due in 20 years. They were issued at 99 and were callable at 103 at any date after June 30, 2020. 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, 2021, and to issue new bonds. New 8% bonds were sold in the amount of $1,000,000 at 102; they mature in 20 years. Pronghorn 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, 2021.
(b)		Prepare the entry required on December 31, 2021, to record the payment of the first 6 months’ interest and the amortization of premium on 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 amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)
		(To record the redemption of the old issue)
	Dec. 31, 2021June 30, 2021
		(To record the sale of the new issue)
(b)

Answer 1

(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 amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	June 30,2021	Bonds payable	740000
		Loss on bond redemption	26270
		Discount on bonds payable (7400/20*11)		4070
		Cash (740000*1.03)		762200
		(To record the redemption of the old issue)
	June 30,2021	Cash (1000000*1.02)	1020000
		Bonds payable		1000000
		Premium on bonds payable		20000
		(To record the sale of the new issue)
(b)	Dec 31,2021	Interest expense	39500
		Premium on bonds payable (20000/40)	500
		Cash (1000000*8%*6/12)		40000