Question

The balance sheet of Indian River Electronics Corporation as of December 31, 2017, included 11% bonds having a face amount of $91.2 million. The bonds had been issued in 2010 and had a remaining discount of $4.2 million at December 31, 2017. On January 1, 2018, Indian River Electronics called the bonds before their scheduled maturity at the call price of 102.

Required:
Prepare the journal entry by Indian River Electronics to record the redemption of the bonds at January 1, 2018.

Answer 1

Bonds Payable $91,200,000

Loss on early extinguishment $6,024,000

To Cash $93,024,000 ($91.2 million × 102%)

To Discount $4,200,000

(Being the redemption of the bond is recorded)

Step-by-step explanation:

The journal entry is shown below:

Bonds Payable $91,200,000

Loss on early extinguishment $6,024,000

To Cash $93,024,000 ($91.2 million × 102%)

To Discount $4,200,000

(Being the redemption of the bond is recorded)

For recording this journal entry we debited the bond payable as it decrease the liability moreover the cash is also decreased so it is credited and the discount is also credited and the remaining balance is debited to the loss