Question

The long-term liability section of Twin Digital Corporation’s balance sheet as of December 31, 2017, included 12% bonds having a face amount of $25 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 14%. Interest expense is recorded at the effective interest rate and paid on January 1 and July 1 of each year. On July 1, 2018, Twin Digital retired the bonds at 104 ($26.0 million) before their scheduled maturity. Required: 1. & 2. Prepare the necessary journal entries for Twin Digital on July 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)

Answer 1

Date	Account titles and Explanation	Debit($)	Credit($)
Jul-01	Interest expense [(25,000,000-1,000,000)*14%*6/12]	1680000
	Discount on bonds payable (27300		180000
	Cash (25,000,000*12%*6/12)		1500000
	(To record the interest expense)
Jul-01	Bonds payable	2,50,00,000
	Loss on early extinguishment of bonds (Bal. fig)	18,20,000
	Discount on bonds payable (1,000,000-180,000)		820000
	Cash (25,000,000*104%)		26000000
	(To record the retirement of bonds)