Holiday Company issued its 7%, 25-year mortgage bonds in the principal amount of
ID: 2490938 • Letter: H
Question
Holiday Company issued its 7%, 25-year mortgage bonds in the principal amount of $3,238,000 on January 2, 2000, at a discount of $169,000, 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 106% of the principal amount, but it did not provide for any sinking fund.
On December 18, 2014, the company issued its 11%, 20-year debenture bonds in the principal amount of $4,024,000 at 101, and the proceeds were used to redeem the 7%, 25-year mortgage bonds on January 2, 2015. 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 7% 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, 2014
January 2, 2015
No.
Date
Account Titles and Explanation
Debit
Credit
(1)December 18, 2014
(2)January 2, 2015
Explanation / Answer
Date
Account titles
Debit
Credit
18-Dec-14
Cash (4024000 x101%)
4064240
Bonds payable
4024000
Premium on issue of bond
40240
Date
Account titles
Debit
Credit
2-Jan-15
Bonds payable
3238000
Loss on redemption (3238000x6%)
194280
Cash (3238000x106%)
3432280
The loss on redemption would be reported as extraordinary loss in the income statement.
Date
Account titles
Debit
Credit
18-Dec-14
Cash (4024000 x101%)
4064240
Bonds payable
4024000
Premium on issue of bond
40240
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.