Question

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

Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.

Answer 1

Answer:

The journal entry is shown below:

Explanation:

According to the scenario, the computation of the given data are as follows:

Cash = $9,000,000 × 98% = $8,820,000

So, Discount = $9,000,000 - $8,820,000 = $180,000

When refunding of bonds,

Bonds payable = $6,000,000

Cash = $6,000,000 × 102% = $6,120,000

Premium = $6,120,000 - $6,000,000 = $120,000

So, the journal entry are as follows:

Cash A/c Dr $8,820,000

Discount A/c Dr $180,000

To Bonds Payable A/c $9,000,000

(Being the new bonds are recorded)

Bonds Payable A/c Dr $6,000,000

Loss A/c Dr $240,000

To Cash A/c $6,120,000

To Premium A/c $120,000

(Being the refunding of the bonds are recorded)