Question

Matthew Perry Company had outstanding $6,000,000 of 11% bonds (interest payable January 31 and July 31) due in 10 years. On July 1, the company issued $9,000,000 of 10%, 15-year bonds (interest payable on January 1 and July 1) at 98. A portion of the proceeds of the $9,000,000 bonds was used to call the entire balance of the 11% bonds (with an unamortized discount of $120,000) at 102 on August 1.

Instructions:

Prepare the journal entries necessary to (1) record the issue of the new bonds and (2) recognize the early redemption of the 11% bonds.

Answer 1

Working notes: Bonds payable face value Issue price at 98% Discount on issue of bonds $9,000,000 $8,820,000 98% of $9,000,000 $180,000 Face value of bonds redeemed Less: Discount unamortised Net carrying value Redemption value Loss on redemption of bonds $6,000,000 $120,000 $5,880,000 $6,120,000 102% of $6,000,000 $240,000 Journal entries: 1) Credit Date Account Titles and Explanation July 1 Cash Discount on bonds payable Bond payable (To record issue of bonds) Debit $8,820,000 $180,000 $9,000,000 2) Date Account Titles and Explanation Aug 1 Bonds payable Loss on redemption of bonds Discount on bonds payable Bond payable (To record redemption of bonds) Debit Credit $6,000,000 $240,000 $120,000 $6,120,000

Answer 2

for august 1st instead of bonds payable it should be cash