Flint Company issued its 9%, 25-year mortgage bonds in the principal amount of $
ID: 2408176 • Letter: F
Question
Flint Company issued its 9%, 25-year mortgage bonds in the principal amount of $3,200,000 on January 2, 2003, at a discount of $164,000, which it proceeded to amortize by charges to expense over the life of the issue on a straight-line basis. The indenture securing the issue provided that the bonds could be called for redemption in total but not in part at any time before maturity at 104% of the principal amount, but it did not provide for any sinking fund.
On December 18, 2017, the company issued its 11%, 20-year debenture bonds in the principal amount of $3,750,000 at 102, and the proceeds were used to redeem the 9%, 25-year mortgage bonds on January 2, 2018. The indenture securing the new issue did not provide for any sinking fund or for redemption before maturity.
(a) Prepare journal entries to record the issuance of (1) the 11% bonds and (2) the redemption of the 9% bonds. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
No.
Date
Account Titles and Explanation
Debit
Credit
December 18, 2017
January 2, 2018
(b) Indicate the income statement treatment of the gain or loss from redemption.
No.
Date
Account Titles and Explanation
Debit
Credit
(1)December 18, 2017
(2)January 2, 2018
Explanation / Answer
Journal entries: Dec18 2017 Cash account Dr. (3750000*102%) 3825000 Bonds payable Account 3750000 Premium on Bonds payable Account 75000 Jan2 2018 9% 25-yr Mortgage Bonds Dr. 3,200,000 Loss on Retirement of bonds Account Dr. 193600 Discount on bonds payable (164000/25*10) 65,600 Cash account (3200,000*104%) 3328000 Req b: Loss on retirement of bonds of $ 193600 To be reported in the financial statement as Extraordinary Loss
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