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On September 30, 2012, Blossom Company issued 9% bonds with a par value of $470,000 due...

On September 30, 2012, Blossom Company issued 9% bonds with a par value of $470,000 due in 20 years. They were issued at 98 and were callable at 105 at any date after September 30, 2017. Because Blossom 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 8% bonds were sold in the amount of $740,000 at 103; they mature in 20 years. Blossom 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.

Bonds Payable
Loss on Redemption
Discount on Bonds Payable
Cash

Cash
Premium on Bonds Payable
Bonds Payable

b. Prepare the entry required on December 31, 2018, to accrue interest and amortize the premium on the bonds.
Interest Expense
Premium on Bonds Payable
Interest payable

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Answer #1

a) Journal entry

Date account and explanation Debit credit
Sep 30,2017 Bonds payable 470000
Loss on redemption 30550
Discount on bonds payable (9400*15/20) 7050
cash (470000*1.05) 493500
Sep 30,2018 Cash (740000*1.03) 762200
Premium on bonds payable 22200
Bonds payable 740000

Journal entries

Date account and explanation debit Credit
Interest expense 14522.5
Premium on bonds payable (22200*20*3/12) 277.5
Interest payable (740000*8%*3/12) 14800
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