Question

Exercise 14-13 Coronado, Inc. had outstanding $5,460,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $9,750,000 of 10%, 15-year bonds (interest payable July 1 and January 1) at 97. A portion of the proceeds was used to call the 11% bonds (with unamortized discount of $109,200) at 102 on August 1. Prepare the journal entries necessary to record issue of the new bonds and the refunding of the bonds.

Answer 1

Answer: Please see expalantion coumn for answer

Step-by-step explanation:

1) To record issuance of bonds

Date Account Title Debit Credit

July 1 Cash $9,457,500

Discount on bond payable $292,500

Bond payable $9,750,000

Calculation:

Cash =$9,750,000 x 97% = $9,457, 500

Discount = $9, 750,000 - $9,457,500= $292,500

2)To record retirement of 11% bonds

Date Account Title Debit Credit

August 1st Bond payable $5,460,000

Loss on Redemption of bonds $218,400

Cash $5,569,200

Discount on Bonds payable $109,200

Calculation:

Cash =$5,460,000 x 102% = $5,569,200

Loss on Redemption of bonds = Cash + Discount on bonds payable - Bonds payable = $5,569,200 + $109,200) - $5,460,000= $218,400