On January 2, Year 2, Sonny Bono Company issued $1,500,000 of 10% bonds at 97 due...
On January 2, Year 2, Sonny Bono Company issued $1,500,000 of 10% bonds at 97 due December 31, Year 11. Interest on the bonds is payable each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10-year life of the bonds. (Straight-line amortization is not materially different in effect from the preferable effective-interest method.)
The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, Year 7, Bono called $750,000 face amount of the bonds and redeemed them.
Instructions:
Prepare the journal entry to record the early redemption of the bonds.
Homework Answers
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yearly amortisation of discount= |
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1500000*(100-97)%/10 = 4500 |
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Journal Entry: |
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Date |
Acc Titles |
Dr. $ |
Cr.$ |
|
|
Jan 2, year 7 |
Bond Payable |
750000 |
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|
Loss on redemption of bonds |
18750 |
(Balancing Figure) |
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|
Discount on Bond Payable |
11250 |
(4500*5/2) |
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|
Cash |
757500 |
(750000*101%) |
||
|
(Redemption of Bonds amounting $750000 |
||||
|
through pre-calling @ 101) |
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