Matt Perry Inc had outstanding 6000000 of 11 bonds interest

Matt Perry, Inc had outstanding $6,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July, 1, it issued $9,000,000 of 10%, 15 year bonds (interest payable July 1 and January 1) at 98. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $120,000) at 102 on August 1.

Prepare the journal entries necessary to record issue of the new bonds and refunding of the bonds.

Solution

Issuance of new bonds: Cash: 9000000* .98 = 8,8200000 Discount on Bonds Payable: 9000000-8820000= 180000 Date: July 1st: Cash 8820000 Discount on Bonds Payable 180000 Bonds Payable 9000000 Refunding of bonds: Bonds Payable - 6,000,000 (amount outstanding) Cash 6000000*1.02 = 6120000 Discount on bonds payable 120000 July 1st: Bonds payable 6000000 Loss on redumption of bonds 240000 Cash 6120000 Discount on bonds payable 120000