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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 wan no requirement for a sinking fund. On January 1, 2017, Dickinson inued 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. [5 Marks]

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Expert Solution

  

Date Particulars Dr Cr
Jan 01,2010 Bank A/C Dr                 1,700,000
Discount on 7% Debentures A/C Dr                 300,000
To 7% Debentures A/C 2,000,000
(Being debentures issued at a discount)
Jan 01,2010 P&L A/C Dr                30,000
To Discount on 7% Debentures A/C            30,000
(Being discount amortized over 10 years)
Jan 01,2010 Premium on Redemption of Debunture A/C Dr 100,000
To Debenture Holders A/C             100,000
(Being premium on redemption recorded in books of account)
Jan 01,2010 Profit and Loss A/C Dr                 100,000
To Premium on Redemption of Debunture A/C           100,000
(Being premium on redemption, written off)
Jan 01,2017 Bank A/C Dr                 3,000,000
To 8% Mortgage A/C             3,000,000
(Being 8% mortgage accounted)
Jan 01,2017 P&L A/C Dr 90,000
To Discount on 7% Debentures A/C            90,000
(Being balance discount on issue of debentures, written off )
Jan 01,2017 Debenture Holders A/C Dr                 2,100,000
To Bank A/C             2,100,000
(Being debentures redeemed at a premium )

ekkarill92 answered 2 years ago
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