Question

Exercise 14-21

Splish Brothers Inc. had outstanding $11 million of 7.75% bonds (interest payable March 31 and September 30) due in 12 years. Splish Brothers was able to reduce its risk rating through investing in more real estate. As a result, on September 1, it issued $6 million of 10-year, 6% bonds (interest payable July 1 and January 1) at 98. A portion of the proceeds was used to call the 7.75% bonds at 104 on October 1. The unamortized bond discount for the 7.75% bonds was $0.910 million on October 1. Splish Brothers prepares financial statements in accordance with IFRS.

Prepare the necessary journal entries to record the issue of the new bonds and the retirement of the old 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.)

Account Titles and Explanation	Debit	Credit
(To record issuance of 6% bonds)
(To record retirement of 7.75% bonds)

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Answer:   Journal Entries

Date	Account Title	Debit	Credit
September 1	Cash (6,000,000 x 0.98)	$5,880,000
	Discount on Bonds payable	$ 120,000
	Bonds Payable		$600,000
	(To record issuance of 6% bonds)
October 1	Bonds Payable	$11,000,000
	Loss on redumption of Bonds	$ 1,350,000
	Cash (11,000,000 x 1.04)		$11,440,000
	Discount on Bonds payable		$ 910,000
	(To record retirement of 7.75% bonds)