Swisher Company issued $2,000,000 of bonds on January 1, 2014. Instructions (a)

Question

Swisher Company issued $2,000,000 of bonds on January 1, 2014.
Instructions
(a) Prepare the journal entry to record the issuance of the bonds if they are issued at (1) 100,
(2) 98, and (3) 103.
(b) Prepare the journal entry to record the redemption of the bonds at maturity, assuming
the bonds were issued at 100.
(c) Prepare the journal entry to record the redemption of the bonds before maturity at 98.
Assume the balance in Premium on Bonds Payable is $9,000.
(d) Prepare the journal entry to record the conversion of the bonds into 60,000 shares of
$10 par value common stock. Assume the bonds were issued at par.

Explanation / Answer

SOLUTION

S.No. Account titles and Explanation Debit ($) Credit ($) A1. Cash 2,000,000 Bonds payable 2,000,000 (Being bonds issued at face value recorded) A2. Cash 1,960,000 Discount on bonds payable ($2,000,000*2%) 40,000 Bonds payable 2,000,000 (Being bonds issued at discount recorded) A3. Cash 2,060,000 Bonds payable 2,000,000 Premium on bonds payable ($2,000,000*3%) 60,000 (Being bonds issued at premium recorded) B. Bonds payable 2,000,000 Cash 2,000,000 (Being bonds retiremenr recorded) C. Bonds payable 2,000,000 Premium on bonds payable 9,000 Cash ($2,000,000*98%) 1,960,000 Gain on redemption of bonds 49,000 (Being retirement of bonds before maturity recorded) D. Bonds payable 2,000,000 Common stock (60,000shares *$10) 600,000 Paid in capital in excess of par 1,400,000 (Being conversion of bonds into common stock recorded)

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