Question

Matt Perry, Inc had outstanding $6,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July, 1, it issued $9,000,000 of 10%, 15 year bonds (interest payable July 1 and January 1) at 98. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $120,000) at 102 on August 1.

Prepare the journal entries necessary to record issue of the new bonds and refunding of the bonds.

Answer 1

Issuance of new bonds:
Cash: 9000000* .98 = 8,8200000
Discount on Bonds Payable: 9000000-8820000= 180000
Date: July 1st:
Cash	8820000
Discount on Bonds Payable	180000
Bonds Payable		9000000
Refunding of bonds:
Bonds Payable - 6,000,000 (amount outstanding)
Cash 6000000*1.02 = 6120000
Discount on bonds payable 120000
July 1st:
Bonds payable	6000000
Loss on redumption of bonds	240000
Cash		6120000
Discount on bonds payable		120000