Presented below are three independent situations. For each independent situation

Question

Presented below are three independent situations.

For each independent situation above, prepare the appropriate journal entry for the redemption or conversion of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

1. Longbine Corporation redeemed $132,000 face value, 13% bonds on June 30, 2017, at 107. The carrying value of the bonds at the redemption date was $117,500. The bonds pay annual interest, and the interest payment due on June 30, 2017, has been made and recorded. 2. Tastove Inc. redeemed $170,000 face value, 18% bonds on June 30, 2017, at 98. The carrying value of the bonds at the redemption date was $171,000. The bonds pay annual interest, and the interest payment due on June 30, 2017, has been made and recorded. 3. Precision Company has $87,000, 8%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay annual interest on December 31 of each year. The bonds are convertible into 35 shares of Precision $10 par value common stock for each $1,000 worth of bonds. On December 31, 2017, after the bond interest has been paid, $22,000 face value bonds were converted. The market price of Precision common stock was $41 per share on December 31, 2017. No. Date Account Titles and Explanation Debit Credit 1. June 30 Bonds Payable 132,000 Loss on Bond Redemption 18,460 Discount on Bonds Paya 14,500 Cash 135,960 2, June 30 Bonds Payable 170,000 Premium on Bonds Payable 1,000 Gain on Bond Redempti 4,400 Cash 166,600 3.T Dec. 31 Bonds Payable 22,000 Common Stock 7,700 Paid-in Capital in Exces 14,300

Explanation / Answer

Solution: No. Date Accounts Titles and Explanation Debit Credit 1. June 30 Bonds payable 132,000 Loss on Bond Redemption 23,740 Discount on Bonds Payable 14,500 Cash 141,240 Working Notes: Bonds payable 132,000 [Face value ] Loss on Bond Redemption 23,740 [Redemption value - Carrying value] [(132,000 x107%) - $117,500] [141,240 - 117,500 = 23740] Discount on Bonds Payable 14500 [face value - carrying value ] [132,000 - 117,500] Cash 141,240 [Redemption value ] [132,000 x 107 %] No. Date Accounts Titles and Explanation Debit Credit 2. June 30 Bonds payable 170,000 Premium on Bonds Payable 1,000 Gain on Bond Redemption 4,400 Cash 166,600 Working Notes: Bonds payable 170,000 [Face value ] Premium on Bonds Payable 1,000 [carrying value-face value] [171,000 - 170,000] Gain on Bond Redemption 4,400 [ Carrying value -Redemption value -] [171,000 - (170,000x 98%] [171,000 - 166,600 = 4400] Cash 166,600 [Redemption value ] [170,000 x 98 %] No. Date Accounts Titles and Explanation Debit Credit 3. Dec. 31 Bonds payable 22,000 Common stock 7,700 Paid in capital in excess of par value 14,300 Working Notes: Bonds payable 22,000 [converted bond face value] Common stock 7,700 [(22,000/1000) x 35 x 10 ] Paid in capital in excess of par value 14,300 [converted bond face value - face value of shares issued] [22,000 - 7,700 = 14,300 Please feel free to ask if anything about above solution in comment section of the question.

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