Question

On June 30, 2012, Bramble Company issued 12% bonds with a par value of $740,000 due in 20 years. They were issued at 99 and were callable at 103 at any date after June 30, 2020. 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, 2021, and to issue new bonds. New 8% bonds were sold in the amount of $1,000,000 at 102; they mature in 20 years. Bramble Company uses straight-line amortization. Interest payment dates are December 31 and June 30.

(a)		Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2021.
(b)		Prepare the entry required on December 31, 2021, to record the payment of the first 6 months’ interest and the amortization of premium on 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.)

No.	Date	Account Titles and Explanation	Debit	Credit
(a)	June 30, 2021Dec. 31, 2021

Answer 1

Discount on issue of bonds	7400	=740000*(1-0.99)
Discount amortized for 9 years	3330	=7400*9/20
Unamortized discount	4070	=7400-3330
Cash paid for redemption	762,200	=740000*1.03
Less: Carrying value of bonds	735930	=740000-4070
Loss on redemption	26270

Date	Account Titles and Explanation	Debit	Credit
June 30,2021	Bonds payable	740000
	Loss on redemption of bonds	26270
	Discount on Bonds payable		4070
	Cash		762200
	(To record the redemption of the old issue)
June 30,2021	Cash	1,020,000		=1,000,000*1.02
	Bonds payable		1,000,000
	Premium on Bonds payable		20,000
	(To record the sale of the new issue)
b
December 31,2021	Interest expense	39500
	Premium on Bonds payable	500		=20000/20*6/12
	Cash		40000	=1,000,000*8%*6/12