Please explain with all calculations E1414 L01 2 Entries for

Please explain with all calculations.

E14-14 (L01 ,2) (Entries for Redemption and Issuance of Bonds) On June 30, 2009, County Company issued 12% bonds with a par value of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2017. 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, 2018, and to issue new bonds. New 10% bonds were sold in the amount of S1 000 000 at 102, they mature in 20 years County Company uses straight-line amortization. Interest payment dates are December 31 and June 30. Instructions (a) Prepare journal entries to record the redemption of the old issue and the sale of the new issue on June 30, 2018. (b) Prepare the entry required on December 31, 2018, to record the payment of the first 6 months\' interest and the amortiza- tion of premium on the bonds.

Solution

a) REDEMPTION OF OLD BONDS: Bonds payable 800000 Loss on redemption of bonds 40800 Discount on bonds payable 8800 Cash (800000*104%) 832000 CALCULATION: Discount on bonds payable, when issued = 800000*0.02 = 16000 Discount amortized = (16000/20)*9 = 7200 Balance discount to be amortized 8800 ISSUE OF NEW BONDS: Cash (1000000*102%) 1020000 Premium on bonds payable 20000 Bonds payable 1000000 (To record sale of new bonds at 102) b) Interest expense Premium on bonds payable (20000/40) 50500 500 Cash (1000000*10%*1/2) 50000 (Payment of half yearly interest on December 31, 2018)