Flint Company issued its 9 25year mortgage bonds in the prin

Flint Company issued its 9%, 25-year mortgage bonds in the principal amount of $3,200,000 on January 2, 2003, at a discount of $164,000, which it proceeded to amortize by charges to expense over the life of the issue on a straight-line basis. The indenture securing the issue provided that the bonds could be called for redemption in total but not in part at any time before maturity at 104% of the principal amount, but it did not provide for any sinking fund.

On December 18, 2017, the company issued its 11%, 20-year debenture bonds in the principal amount of $3,750,000 at 102, and the proceeds were used to redeem the 9%, 25-year mortgage bonds on January 2, 2018. The indenture securing the new issue did not provide for any sinking fund or for redemption before maturity.

(a) Prepare journal entries to record the issuance of (1) the 11% bonds and (2) the redemption of the 9% bonds. (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

December 18, 2017

January 2, 2018

(b) Indicate the income statement treatment of the gain or loss from redemption.

No.	Date	Account Titles and Explanation	Debit	Credit
(1)	December 18, 2017
(2)	January 2, 2018

Solution

Journal entries Date Accounts title and explanations Debit $ Crdit $ Dec 18 2017 Cash Acccount Ddr. 3,825,000       11% 20-yr Debenture bonds Account 3750000        Premium on bonds payable 75,000 2-Jan-18 9% 25-yr Mortgage Bonds Account Dr. 3,200,000 Loss on retirement of Bonds Account Dr. 193600            Cash Account (32000*104) 3,328,000            Discount on Bonds payable (164000/25*10) 65,600 Rreqb: Loss on Retirement of bonds 193600 (It is a extraordinary Loss)