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Dickinson Limited issued 10-year, 7% debentures with a face value of $2 million on January 1,...

Dickinson Limited issued 10-year, 7% debentures with a face value of $2 million on January 1, 2010. The proceeds received were $1.7 million. The discount was amortized on the straight-line basis over the 10-year term. The terms of the debenture stated that the debentures could be redeemed in full at any point before the maturity date, at a price of 105 of the principal. There was no requirement for a sinking fund. On January 1, 2017, Dickinson issued a mortgage at 101 with a principal of $3 million secured by land and building. The mortgage had a 25-year amortization period, with interest payable at 8%. Upon issuance of the mortgage, Jeremiah used the proceeds to redeem the 7% debentures. Prepare journal entries to record the issuance of the 8% mortgage and the retirement of the 7% debentures..

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Expert Solution

The journal entries are as follows:

in mn
S.No Particulars Dr (in $) Cr (in $)
01-Jan-10 Bank A/C …Dr                 1.70
Discount on Issue of Debentures A/C …Dr                 0.30
To 7% Debentures A/C             2.00
(Being 7% debentures issued at a discount of $0.30 million)
01-Jan-10 Profit and Loss A/C …dr                 0.03
To Discount on Issue of Debentures A/C             0.03
(Being discount on issue of debentures, written off on SLM basis for 10 years)
01-Jan-10 Premium on Redemption A/C …dr                 0.10
To Debentureholders A/C             0.10
(Being premium on redemption recorded in books of account)
01-Jan-10 Profit and Loss A/C …dr                 0.10
To Premium on Redemption A/C             0.10
(Being premium on redemption, written off)
01-Jan-17 Bank A/C …dr                 3.00
To 8% Mortgage A/C             3.00
(Being 8% mortgage raised)
01-Jan-17 Profit and Loss A/C …dr                 0.09
To Discount on Issue of Debentures A/C             0.09
(Being remaining discount on issue of debentures, written off )
01-Jan-17 Debentureholders A/C …dr                 2.10
To Bank A/C             2.10
(Being debentures redeemed at a premium of $5)

ekkarill92 answered 2 years ago
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