Question

Question 2 of 5 -/1 View Policies Current Attempt in Progress On June 30, 2012, Sheffield Company issued 12% bonds with a par value of $860,000 due in 20 years. They were issued at 98 and were callable at 104 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 $980,000 at 103; they mature in 20 years. Sheffield Company uses straight-line amortization. Interest payment dates are December 31 and June 30. (a) (b) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2021. 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 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and entero for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Date Account Titles and Explanation Debit Credi (a) (To record the redemption of the old issue)

Answer 1

Credit Solution: No Date Account Titles and Explanation Debit A June 30,2021 Bonds payable $ 8,60,000 Loss on redemption of bonds $ 43,860 Discount on Bonds payable Cash (To record the redemption of the old issue) $ $ 9,460 8,94,400 $ 10,09,400 June 30,2021 Cash Bonds payable Premium on Bonds payable (To record the sale of the new issue) $ $ 9,80,000 29,400 B 38,465 735 Dec 31,2021 Interest expense $ Premium on Bonds payable $ Cash (To record Interest Expenses for six Months) $ 39,200 Working Notes: 1 Bonds Sold at 103 i,e., =980000*1.03 = 1009400 2 Calculation of Redemption Loss: Discount on issue of bonds Discount amortized (2012-2021) Unamortized discount $ $ $ 17,200 (860000*(1-0.98)) 7,740 (17200*9/20) 9,460 Cash paid for redemption Less: Carrying value of bonds Loss on redemption $ $ $ 8,94,400 (860000*1.04) 8,50,540 (860000-9460) 43,860 3 Calculation of interest for 2021 Interest portion =980000*8%*6/12 = 39200 Premium on bonda Payabel =29400/20*6/12=735 * Kindly Comment down for any clarifications/ queries and please upvote.