Question

Cheyenne, Inc. had outstanding $6,420,000 of 11% bonds interest payable July 31 and January 31 due in 10 years. On July 1 it issued $8,590,000 of 11%, 15-year bonds interest payable July 1 and January 1) at 99, A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $192,600) at 103 on August 1. Prepare the journal entries necessary to record issue of the new bonds and the refunding of 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.)

Answer 1

Step-by-step explanation:

The journal entries are shown below:

1. Cash A/c Dr $8,504,100 ($8,590,000 × 0.99)

Discount on Bond payable A/c Dr $12,000

To Bond Payable A/c $8,590,000

(Being the bond payable is issued)

2. Bond payable A/c Dr $6,420,000

Loss on retirement of bonds A/c Dr $385,200

To Discount on Bond payable A/c $192,600

To Cash A/c $6,612,600 ($6,420,000 × 103%)

(Being the refunding of the bond is recorded)