Brief Exercise 10-11 The balance sheet for Sheridan Company reports the followin

Question

Brief Exercise 10-11 The balance sheet for Sheridan Company reports the following information on July 1, 2017. SHERIDAN COMPANY Balance Sheet (partial) Long-term liabilities Bonds payable $3,800,000 85,500 $3,714,500 Less: Discount on bonds payable Sherdan decides to redeem these bonds at 109 after paying annual interest. Prepare the journal entry to record the redemption on July 1, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation July 1 Debit Credit

Explanation / Answer

Journal entry:

As Bonds are redeemed, so we have to close these accounts , Bonds payable and discount on bonds payable. So Bonds payable is debited and discount is credited. Cash is paid on redemption so it is also credited. Loss on Bond redemption is the balancing amount of debit and credit amount.

July 1 Bonds payable $3,800,000 Loss on Bonds redemption(balancing amount) $427,500 Cash(3800,000×1.09) $4,142,000 Discount on bonds payable $85,500

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