E14-14B (Entries for Retirement and Issuance of Bonds) On June 30, 2006, Einstei
ID: 2387084 • Letter: E
Question
E14-14B (Entries for Retirement and Issuance of Bonds) On June 30, 2006, Einstein Corp. issued 10%bonds with a par value of $1,000,000 due in 20 years. They were issued at 98 and were callable at 102 at
any date after June 30, 2012. Because of lower interest rates and a significant change in the company’s
credit rating, it was decided to call the entire issue on June 30, 2013, and to issue new bonds. New 6%
bonds were sold in the amount of $1,100,000 at 101; they mature in 20 years. Einstein Corp. uses straightline
amortization. Interest payment dates are December 31 and June 30.
Instructions
(a) Prepare journal entries to record the retirement of the old issue and the sale of the new issue on
June 30, 2013.
(b) Prepare the entry required on December 31, 2013, to record the payment of the first 6 months’ interest
and the amortization of premium on the bonds.
Explanation / Answer
June 30,2013 10% Bonds A/c…………Debit 1,000,000 Premium on bonds payable A/c………..Dr 20,000 To Cash/bank A/c 1,020,000 June 30,2013 Cash/bank A/c………Debit 1,111,000 To 6% Bonds A/c 1,100,000 To Premium on bonds payable A/c 11,000 Dec 31,2013 Interest A/c…………..Dr 32,450 Premium on bonds payable A/c………..Dr 550 (11000/20) To Cash/bank A/c 33,000 Interest amount = (1,100.000*6%*6/12)
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