/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} 13E (Entries for Redemption and Issu... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 14: 13E (page 756)

(Entries for Redemption and Issuance of Bonds) 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.

Instructions

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

Short Answer

Expert verified

Discount on issue of bonds $180,000

Loss on redemption of bonds $240,000

Step by step solution

01

Meaning of Bonds

Bonds are long-term financial debt instruments issued by a company for which the company pays interest to the bondholders and repays the borrowed amount after a specific period. A company can issue bonds at par, premium, or discount.

02

Journal Entries

Date

Accounts Titles and Explanations

Debit

Credit

July 1

Cash

$8,820,000

Discount on Bonds Payable

$180,000

Bonds payable

$9,000,000

(To record issue of bonds)

Aug 1

Bonds Payable

$6,000,000

Loss on redemption of bonds

$240,000

Discount on bonds payable

$120,000

Cash

$6,120,000

(To record redemption of bonds)

Working notes:

Bonds payable face value

$9,000,000

Issue price at 98% ($9,000,000 脳 98%)

$8,820,000

Discount on issue of bonds

$180,000

Face value of bonds redeemed

$6,000,000

Less: Discount unamortized

$120,000

Net carrying value

$5,880,000

Redemption value ($6,000,000 脳 102%)

$6,120,000

Loss on redemption of bonds

$240,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Gottlieb Co. owes \(199,800 to Ceballos Inc. The debt is a 10-year, 11% note. Because Gottlieb Co. is in financial trouble, Ceballos Inc. agrees to accept some land and cancel the entire debt. The property has a book value of \)90,000 and a fair value of $140,000.

Instructions

  1. Prepare the journal entry on Gottlieb鈥檚 books for debt restructure.
  2. Prepare the journal entry on Ceballos鈥檚 books for debt restructure

(Entries for Zero-Interest-Bearing Note; Payable in Installments) Sabonis Cosmetics Co. purchased machinery on December 31, 2016, paying \(50,000 down and agreeing to pay the balance in four equal installments of \)40,000 payable each December 31. An assumed interest of 8% is implicit in the purchase price.

Instructions Prepare the journal entries that would be recorded for the purchase and for the payments and interest on the following dates.

(Round answers to the nearest cent.)

(a) December 31, 2016. (d) December 31, 2019.

(b) December 31, 2017. (e) December 31, 2020.

(c) December 31, 2018.

What is done to record properly a transaction involving the issuance of a non-interest -bearing long-term note in exchange for property?

How should discounts on bonds payable be reported on the financial statements? Premium on bonds payable?

Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay鈥檚 Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.

Carrying Value

Fair Value

December 31, 2017

\(54,000

\)54,000

December 31, 2018

44,000

42,500

December 31, 2019

36,000

38,000

Instructions

(a) Prepare the journal entry at December 31 (Fallen鈥檚 year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.

(b) At what amount will the note be reported on Fallen鈥檚 2018 balance sheet?

(c) What is the effect of recording the fair value option on these notes on Fallen鈥檚 2019 income?

(d) Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen鈥檚 creditworthiness has improved or declined in 2019? Explain.
See all solutions

Recommended explanations on Business Studies Textbooks

Nature of Business

Read Explanation

Organizational Behavior

Read Explanation

Startups

Read Explanation

Operational Management

Read Explanation

Sales in Business

Read Explanation

Strategic Analysis

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.