Question

On June 30, 2009, Einstein Corp. issued 10% bonds with a par value of $1,000,000 due in 20 years. They were issued at 98 and were callable at 102 at any date after June 30, 2017. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2018, and to issue new bonds. New 6% bonds were sold in the amount of $1,100,000 at 101; they mature in 20 years. Einstein Corp. uses straight-line amortization. Interest payment dates are December 31 and June 30.

(a) Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 30, 2018. (b) Prepare the entry required on December 31, 2018, to record the payment of the first 6 months’ interest and the amortization of premium on the bonds.

Answer 1

ANSWER

June 30,2018	10% Bonds A/c…………Debit	1,000,000
	Premium on bonds payable A/c………..Dr	20,000
	To Cash/bank A/c		1,020,000
June 30,2018	Cash/bank A/c………Debit	1,111,000
	To 6% Bonds A/c		1,100,000
	To Premium on bonds payable A/c		11,000
Dec 31,2018	Interest A/c…………..Dr	32,450
	Premium on bonds payable A/c………..Dr	550
	(11000/20)
	To Cash/bank A/c		33,000
	Interest amount = (1,100.000*6%*6/12)

==========================================

DEAR STUDENT,

If you have any query or any Explanation please ask me in the comment box, i am here to helps you.please give me positive rating

*****************THANK YOU**************