Question

Carla, Inc. had outstanding $6,060,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,860,000 of 10%, 15-year bonds (interest payable July 1 and January 1) at 97. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $242,400) at 104 on August 1. Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit July 1 (To record issuance of 10% bonds) August 1 (To record retirement of 11% bonds)

Answer 1

a) Journal entries

Date	account and explanation	Debit	Credit
July 1	Cash (9860000*.97)	9564200
	Discount on bonds payable	295800
	Bonds payable		9860000
	(To record bond issue)

b) Journal entries

Date	account and explanation	Debit	Credit
Aug 1	Cash (6060000*1.04)	6302400
	Discount on bonds payable	242400
	Bonds payable		6060000
	Gain on Sale of bonds		484800
	(To record retirement)