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On September 30, 2012, Sandhill Company issued 12% bonds with a par value of $620,000 due...

On September 30, 2012, Sandhill Company issued 12% bonds with a par value of $620,000 due in 20 years. They were issued at 97 and were callable at 106 at any date after September 30, 2017. Because Sandhill 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 9% bonds were sold in the amount of $800,000 at 104; they mature in 20 years. Sandhill Company uses straight-line amortization. Interest payment dates are March 31 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. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

b) Prepare the entry required on December 31, 2018, to accrue interest and amortize the premium on the bonds. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

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Answer #1

a) Journal entries

Date General Journal Debit Credit
Sept 30, 2018 Bonds payable 620000
Loss on bond redemption 50220
Discount on bonds payable (620000*.03)*14/20 13020
Cash (620000*1.06) 657200
(To record bond redemption)
Sept 30,2018 Cash (800000*1.04) 832000
Bonds payable 800000
Premium on bonds payable 32000

Journal entry

Date General Journal Debit Credit
Dec 31,2018 Interest expense 17600
Premium on bonds payable (32000/20)*3/12 400
Interest payable (800000*9%*3/12) 18000
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