Question

Exercise 14-14 On June 30, 2009, Sheridan Company issued 12% bonds with a par value of...

Exercise 14-14

On June 30, 2009, Sheridan Company issued 12% bonds with a par value of $840,000 due in 20 years. They were issued at 98 and were callable at 103 at any date after June 30, 2017. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2018, and to issue new bonds. New 8% bonds were sold in the amount of $1,060,000 at 103; they mature in 20 years. Sheridan Company uses straight-line amortization. Interest payment dates are December 31 and June 30.

(a) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2018.
(b) Prepare the entry required on December 31, 2018, to record the payment of the first 6 months’ interest and the amortization of premium on the bonds
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Answer #1

Journal entries :

Date account and explanation debit credit
June 30,2018 Bonds payable 840000
Loss on redemption of bonds 32760
discount on bonds payable (16800/40*18) 7560
Cash (840000*1.03) 865200
(To record redemption of the old issue)
June 30,2018 Cash 1091800
Bonds payable 1060000
Premium on bonds payable 31800
(To record bond issue)

Journal entry

date account and explanation Debit credit
Dec 31 Interest expense 41605
Premium on bonds payable (31800/40) 795
Cash (1060000*8%*6/12) 42400
(To record interest)
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