Question

Swisher Company issued $2,000,000 of bonds on January 1, 2014.
Instructions
(a) Prepare the journal entry to record the issuance of the bonds if they are issued at (1) 100,
(2) 98, and (3) 103.
(b) Prepare the journal entry to record the redemption of the bonds at maturity, assuming
the bonds were issued at 100.
(c) Prepare the journal entry to record the redemption of the bonds before maturity at 98.
Assume the balance in Premium on Bonds Payable is $9,000.
(d) Prepare the journal entry to record the conversion of the bonds into 60,000 shares of
$10 par value common stock. Assume the bonds were issued at par.

Answer 1

SOLUTION

S.No.	Account titles and Explanation	Debit ($)	Credit ($)
A1.	Cash	2,000,000
	Bonds payable		2,000,000
	(Being bonds issued at face value recorded)
A2.	Cash	1,960,000
	Discount on bonds payable ($2,000,000*2%)	40,000
	Bonds payable		2,000,000
	(Being bonds issued at discount recorded)
A3.	Cash	2,060,000
	Bonds payable		2,000,000
	Premium on bonds payable ($2,000,000*3%)		60,000
	(Being bonds issued at premium recorded)
B.	Bonds payable	2,000,000
	Cash		2,000,000
	(Being bonds retiremenr recorded)
C.	Bonds payable	2,000,000
	Premium on bonds payable	9,000
	Cash ($2,000,000*98%)		1,960,000
	Gain on redemption of bonds		49,000
	(Being retirement of bonds before maturity recorded)
D.	Bonds payable	2,000,000
	Common stock (60,000shares *$10)		600,000
	Paid in capital in excess of par		1,400,000
	(Being conversion of bonds into common stock recorded)