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Culver, Inc. had outstanding $5,460,000 of 11% bonds (interest payable July 31 and January 31) due...

Culver, Inc. had outstanding $5,460,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,750,000 of 10%, 15-year bonds (interest payable July 1 and January 1) at 97. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $109,200) at 102 on August 1.

Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

July 1

(To record issuance of 10% bonds)

August 1

(To record retirement of 11% bonds)

Solutions

Expert Solution

Answer
Journal entry
Date Account Titles and Explanations Debit Credit
Jul.1 Cash (97% of face value) $       94,57,500
Discount on bonds payable (3% of face value) $         2,92,500
Bonds payable $      97,50,000
(To record entry to record issue of bonds)
Aug.1 Interest expense (one month) $            50,050
Bonds payable $       54,60,000
Discount on bonds payable $        1,09,200
Cash (102% of face value) $      55,69,200
Loss on redemption of bonds $         1,68,350
(To record refunding)

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