The long-term liability section of Eastern Post Corporation’s
balance sheet as of January 1, 2018, included 10% bonds having a
face amount of $40 million and a remaining premium of $6 million.
On January 1, 2018, Eastern Post retired some of the bonds before
their scheduled maturity.
Required:
Prepare the journal entry by Eastern Post to record the
redemption of the bonds under each of the independent circumstances
below:
1. Eastern Post called half the bonds at the call price of
102 (102% of face amount).
2. Eastern Post repurchased $10 million of the
bonds on the open market at their market price of $10.5
million.
1) | |||
Date | Accounts Titles and Explanation | Debit | Credit |
January 1, 2018 |
Bonds Payable ( $ 40 million / 2 ) |
$ 20,000,000 | |
Premium on bonds payable ( $ 6 million / 2 ) |
$ 3,000,000 | ||
Cash ( $ 40 million / 2 ) x 102% |
$ 20,400,000 | ||
Gain onearly extinguishment (or ) Redemption ( Bal. Fig. ) |
$ 2,600,000 | ||
(To record the redemption of the bonds) | |||
2) | |||
Date | Accounts Titles and Explanation | Debit | Credit |
January 1, 2018 | Bonds Payable | $ 10,000,000 | |
Premium on bonds payable ( $ 6 / $ 40 million x 10 million ) |
$ 1,500,000 | ||
Cash ( $ 40 million / 2 ) x 102% |
$ 10,500,000 | ||
Gain onearly extinguishment (or ) Redemption ( Bal. Fig. ) |
$ 1,000,000 | ||
(To record the redemption of the bonds) |
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Problem 14-15 Early extinguishment; effective interest
[LO14-5]
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Interest expense is recorded at the effective interest rate and
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