Question

Tamarisk, Inc. had outstanding $5,780,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,120,000 of 11%, 15-year bonds (interest payable July 1 and January 1) at 97. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $115,600) at 102 on August 1. Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.

Answer 1

Journal entries:
Date	Accounts title and explanations				Debit $	Credit $
1-Jul	Cash account (9120000*97%)				8846400
	Discount on bonds Payable				273600
	Bonds Payable					9120000
	(for Issuance of bonds)
1-Aug	Bonds Payable				5780000
	Loss on redemption of bonds				231200
	Discount on bonds Payable					115600
	Cash account					5895600
Note:
Bonds Payable par value redeemed				5780000
Less: Unamortized discount				115600
Book value of Bonds Payable				5664400
Redemption value (5780000*102%)				5895600
Loss on Redemption of bonds				231200