On September 30, 2012, Sunland Company issued 9% bonds with a par value of S610,

Question

On September 30, 2012, Sunland Company issued 9% bonds with a par value of S610,000 due in 20 years. They were issued at 99 and were callable at 105 at any date after September 30, 2017. Because Sunland Company was able to obtain financing at lower rates, it decided to call the entire issue on September 30, 2018, and to issue new bonds. New 7% bonds were sold in the amount of $950,000 at 104; they mature in 20 years. Sunland Company uses straight-line amortization. Interest payment dates are-arch 3 and September 30. (a) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on September 30, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Il no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (To record the redemption of old issue) To record the sale of new issue)

Explanation / Answer

Journal Entries Bonds Payable $610,000 Loss on redemption of bonds $34,770 Discount on Bonds $4,270 Cash $640,500 (To record the redemption of old issue) Cash $988,000      Bonds Payable $950,000      Premium on Bonds payable $38,000 (To record the sale of new issue) Working note: Loss on redemption of bonds Face value of Bonds    610,000 Less: Discount on bonds         4,270 Carrying value of bonds    605,730 Cash paid    640,500 Loss on redemption of bonds    (34,770) Balance in Discount on Bonds Discount on Bonds 6100 Amount amortized over 6 years (6100/20x6) 1830 Balance in Discount on Bonds 4270

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