Question

Practice Exercise 14-3

On September 30, 2012, Sheridan Company issued 10% bonds with a par value of $520,000 due in 20 years. They were issued at 98 and were callable at 105 at any date after September 30, 2017. Because Sheridan 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 $880,000 at 103; they mature in 20 years. Sheridan Company uses straight-line amortization. Interest payment dates are March 31 and September 30.

Prepare journal entries to record the redemption of the old issue and the sale of the new issue on September 30, 2018

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.)

Answer 1

a. Journal Entry
Date	Particular	Dr. ($)	Cr .($)
30-Sep-18	Bonds Payable	$520,000
	Loss on Redemption of Bonds	32240
	To Discounts on Bonds Payable		$6,980
	To Cash		$545,260
	(To record the redemption of old issue)
30-Sep-18	Cash($880000*103%)	$906,400
	To Premium on Bonds Payable		$26,400
	To Bonds Payable		880000
	(To record the sale of new issue)

Working Notes :
Requistion Price ($520,000*105%)		$546,000
Less: Net Carrying Value amt of bonds redeemed:
Par Value	$520,000
Less: Unamortized Discount
(Par Value*2%)*14/20	6240	$513,760
Loss on Redemption		$32,240

b. Journal Entry
Date	Particular	Dr. ($)	Cr .($)
31/12/2018	Interest Expense	$34,540
	Premium on Bonds Payable ($26400*1/40)	$660
	To Cash ($880,000*8%)*6/12		35200