In: Accounting
The long-term liability section of Twin Digital Corporation’s balance sheet as of December 31, 2017, included 10% bonds having a face amount of $50 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 12%. Interest expense is recorded at the effective interest rate and paid on January 1 and July 1 of each year. On July 1, 2018, Twin Digital retired the bonds at 103 ($51.5 million) before their scheduled maturity. Required: 1. & 2. Prepare the necessary journal entries for Twin Digital on July 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollar.)
Part 1: Prepare the journal entry by Twin Digital to record the semiannual interest on July 1, 2018. | ||
General Journal | Debit | Credit |
Interest Expense (12%*49,000,000*6/12) | $ 2,940,000 | |
Discount on Bonds Payable | $ 440,000 | |
Cash (10%*50000000*6/12) | $ 2,500,000 | |
Part 2: Prepare the journal entry by Twin Digital to record the redemption of the bonds on July 1, 2018 | ||
General Journal | Debit | Credit |
Bonds Payable | $ 50,000,000 | |
Loss on early extinguishment | $ 2,060,000 | |
Discount on Bonds Payable (1,000,000 – 440,000) | $ 560,000 | |
Cash (50,000,000 x 103%) | $ 51,500,000 | |