Question

On June 30, 2013, Sarasota Limited issued 11.25% bonds with a par value of $754,000 due in 20 years. They were issued at 96 and were callable at 102 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, 2020, and to issue new bonds. New 10% bonds were sold in the amount of $1 million at 103; they mature in 20 years. The company follows ASPE and uses straight-line amortization. The interest payment dates are December 31 and June 30 of each year.

(a)

Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 30, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
June 30, 2020	enter an account title to record redemption of bonds payable	enter a debit amount	enter a credit amount
	enter an account title to record redemption of bonds payable	enter a debit amount	enter a credit amount
	enter an account title to record redemption of bonds payable	enter a debit amount	enter a credit amount
	(To record redemption of bonds payable)
June 30, 2020	enter an account title to record issuance of new bonds	enter a debit amount	enter a credit amount
	enter an account title to record issuance of new bonds	enter a debit amount	enter a credit amount
	(To record issuance of new bonds)

Answer 1

Answer:

Date	Particulars	Debit ($)	Credit ($)
June 30 2020	Bonds payable	754,000
	Loss on redemption of bonds	34684
	Discount on bonds payable 754000*0.04 = 30160 - (30160/20*7) = 10556		19604
	Cash (754000*102%)		769,080
	(To record redemption of bonds payable)
June 30 2020	Cash (1000000*103%)	1,030,000
	Premium on bonds payable		30,000
	Bonds payable		1,000,000
	(To record issuance of new bonds)